The Case Against Google Glass "Supplier" Himax Technologies

Display-driver supplier Himax Technologies (NASDAQ: HIMX  ) has just received a sucker punch. The stock was already in the doldrums this year, and the latest "unconfirmed reports" have dealt a hammer blow to Himax's prospects. Himax was widely touted to supply LCOS microdisplays for Google (NASDAQ: GOOG  ) (NASDAQ: GOOGL  ) Glass and attain glorious heights, but now there seems to be a question mark over those prospects.

The stock fell close to 14% on Tuesday after unconfirmed reports indicated that Google might not be using Himax's microdisplays, according to Fool contributor Steve Symington. TheStreet also carried a story along similar lines. 

Losing its wheels?
If this turns out to be true, then Himax shares might remain in free-fall mode. The stock had run up tremendously last year on the back of Google Glass prospects, only to lose more than 50% so far this year. In fact, Himax was trading at a rich earnings multiple even though its revenue and earnings growth slowed down.

When Himax reported its first-quarter earnings in May, its guidance left a lot to be desired. The company said that its current quarter's revenue would remain flat from last year due to inventory buildup at one of its major customers. Also, Chardan Capital Markets downgraded the stock to a "sell" rating.

Chardan analyst Jay Srivatsa went on to say that the Google Glass launch might happen in 2015. Himax hasn't expanded its LCOS panel capacity and the chances of a ramp-up in 2014 are minimal. As a result, the analyst firm slashed Himax's LCOS shipment forecast to 5 million units from the original 15 million, and also stated that even the current forecast is "aggressive." 

However, a decline in its LCOS ramp-up might also suggest that Google is not intending on using Himax 's solutions in Google Glass. Of course, Google had taken a 6.3% stake in Himax last year, and also has the option of increasing the stake to 14.8% through preferred share purchases. But what if Google doesn't opt for Himax at all?

Has Himax lost Glass?
Earlier this year, Google partnered with Ray-Ban maker Luxottica to make Glass a stylish product and expand its adoption. According to Luxottica's press release, "the two Corporations will establish a team of experts devoted to working on the design, development, tooling and engineering of Glass products that straddle the line between high-fashion, lifestyle and innovative technology." 

Note the words "design, development, tooling and engineering." What if the latest deal with Luxottica has led to a change in the way Google Glass is currently manufactured? Himax isn't the lone microdisplay supplier in the world, and there's a possibility that a different manufacturer's products might suit the Luxottica design better than Himax.

The success of Glass isn't guaranteed
Already, Himax investors have been burned a lot this year in anticipation of Google Glass. Recently, Sergey Brin indicated that he's not sure if we will see a Glass launch this year. The device has been in pilot phase for two years, and it has still not emerged from it. Moreover, Google Glass has been criticized for encroaching on privacy and creating distractions.

Lawmakers in Illinois have introduced legislation that bans the use of Google Glass while driving, even though the search giant lobbied hard to prove its point that Glass isn't a distraction. In addition, there have been a number of reports that indicate that Google Glass has been banned in restaurants, bars, and even pet stores.

At almost $16 million in lobbying costs, Google was the second-largest corporate spender last year. It has lobbyists in Delaware, Illinois, Missouri, and Wyoming to push Google Glass. However, it is facing resistance and that cannot be denied.

Final words
What if Google Glass turns out to be a limited-use product that you cannot use everywhere like your smartphone? What if it ends up being just a fashion accessory? Finally, what if Google ditches Himax altogether? The millions of units of microdisplay shipments that Himax investors have been counting on to drive its revenue might not happen after all. Relying on one customer is bad for a company's health -- remember Apple supplier Cirrus Logic? Counting on Himax to scale new highs on just the Google Glass is plain foolish -- small "f" intended.

If not Glass, what's wearable computing's next big thing?
Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out, and some early viewers are claiming its everyday impact could trump the iPod, iPhone, and the iPad. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Read/Post Comments (12) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On June 01, 2014, at 9:12 AM, tripoley1966 wrote:

    Fear, uncertainty and doubt. Congratulations.

  • Report this Comment On June 01, 2014, at 11:26 AM, santoshps wrote:

    Again another article to scare off investors

    Go check this -- for all true investors (May 27th factsheet)

    http://www.himax.com.tw/en/investor/HIMX_Factsheet_5_27_14.p...

    ====================================

    Develop new technologies with multiple customers using LCOS microdisplay for HMD such as Google Glass, HUD, pico

    -

    projector and o

    ther wearable

    computing applications.

    ====================================

    Harsh, I DEMAND an answer to this factsheet from you. What is the basis of your research

    FOOL, remove this article ASAP. I make a case against this guy for spreading false rumors

  • Report this Comment On June 01, 2014, at 12:04 PM, xDiver619x wrote:

    This article is utter BS. Himax's success as a business unit HAS NOTHING TO DO WITH STUPID GOOGLE GLASS! Why don't you research the company and it's current revenue streams and future potential. LCOS doesn't even make a substantial portion of their tech portfolio.

    Going forward, Himax stands to make tremendous gains in their DISPLAY DRIVER business for small/med panels and large panels. Let's not forget about 4K TV's. That market will explode over the next 3 years. Look at China - Himax dominates the market as a supplier and THEY HAVE A DIVERSIFIED CUSTOMER BASE. Not one single customer in China commands more than 10% of their sales. Diversified customer bases have higher margins with less price pressure and present an opportunity to increase sales through new products. This author obviously knows nothing about building a business or how companies become dominate players. Himax will actually benefit from the Renasas sale of their display driver business. Renasas was smart to divest a business unit with ONE customer! You can't out all your eggs in 1 basket and now Himax has an opportunity to approach Apple. Imagine this - Apple tells Synaptics to piss off we don't want to do business with you because you because we have our own proprietary touchpad and sensor companies that we have invested in. What if apple say, hey we lost the bid to buy this division, let's look for a new supplier. Perfect opportunity for Apple to buy a piece of Himax or even the whole company.

    How about all the displays in EVERY NEW AUTOMBILE? Himax is positioned to grow in this vertical by double digits.

    The author here us clearly a FOOL and thinks that Google Glass is the only way Himax will be successful.

    Let's look at their findamentals versus the industry averages of their peers - they have a lower P/E and P/S ratios. Their forward looking P/E currently is 11 and represents good potential growth.

    Look at the financial statements - fundamentals are solid. Cash on hand, increasing GPM and more.

    The only thing Google did for this stock was to shine light on a company that is portioned to grow anyways.

    This article holds no weight as to the business strength of Himax. Poorly written and poorly researched!

  • Report this Comment On June 01, 2014, at 12:09 PM, santoshps wrote:

    Diver619 - His articles are always poorly researched and written.

    less than an year back, the author Harsh was touting Himax as his best stock he has picked. You can google his articles

    I think he has colluded with some bearish analysts who pay him money to write these articles. His articles are hence intentionally biased and ALWAYS negative recently. He has NO OPINION of his own

    He is a scavenger on other's analysis and just writes them to make a living of his own. Just ignore him

    See my link below

    http://www.himax.com.tw/en/investor/HIMX_Factsheet_5_27_14.p...

    Clearly indicates Google Glass as one of of their products and Google as a customer.. Need anymore proof?

  • Report this Comment On June 01, 2014, at 12:25 PM, xDiver619x wrote:

    I read this article again and the last paragraph about Cirrus. Logic. The author is clearly not an educated researcher and doesn't know how to look at the current and future revenue streams of a business. What a FOOL. And Motley Fool should remove this guys article based on flawed research and misinformation.

    Investors should know that Himax has hundreds of customers and hundreds of products. LCOS isn't the future if the company and it's display drivers for several industries - Automotive, Cell Phones, Comouter Monitors, TV - far out number Google Glass sales. Let look at the cost to manufacture Google Glass - $180 in hard cost. The LCOS portion isn't going to cost more than $10. If Google Glass sells 5M units a year = $50M in revenue. Big deal. Let look at the auto sales, tv sales, smartphone sales (especially HD displays on smartphones in China).

    Everyone wants to keep bringing up Google Glass when Himax is mentioned but fail to talk about how Himax got started and who their real customers are, and it's not a product development partner that can't even get a product properly launched.

    Google obviously saw the potential with Himax and that's why they invested. Brin is a smart guy and sees that Himax has great products and a diversified sales channel. How about the google car? Those are going to have displays in them too!

  • Report this Comment On June 01, 2014, at 12:33 PM, xDiver619x wrote:

    Deleted my comments? Wow.

  • Report this Comment On June 01, 2014, at 10:16 PM, xDiver619x wrote:

    Himax HAS NO LONG TERM DEBT! Their TTM P/E trails the industry average and their P/E 5 Year Average is behind the industry which points to a positive upside in growth. Look at their P/S vs Industry Average - Himax is trading a a discount right now.

    They have a diversified customer base and sell products world wide and are positioned to take advantaged of HD display smartphone growth and tablet device growth in China. China mobile has 763 Million customers - 2x the entire population of the United States. Himax provides white box manufacturers in China with display drivers. So where's the growth Harsh?

    You stated you don't own any US stocks... this isn't a US company, but they trade on the NASDAQ.

    From the looks of your picture, you have about as much life experience as a fresh head of lettuce. Crispy green behind the ears. And obviously you have no business acumen in the real world. Ditch the sunglasses and open your eyes, do your homework and provide competent analysis of companies rather than writing short sighted articles that don't elaborate on the entire breadth of the company and it's revenue streams. Google Glass isn't going to make or break Himax.....

    HIMX VS INDUSTRY AVERAGE

    Valuation

    Market Cap $1.13B $11.28B

    P/E (Trailing Twelve Months) 18.42 25.91

    P/E (5-Year Average) 17.05 23.50

    PEG Ratio (5-Year Projected) 0.47 1.93

    Enterprise Value $988.07M $50.95B

    Price/Cash Flow (TTM) 14.49 24.77

    Price/Sales (TTM) 1.43 4.20

    Price/Book 2.56 3.98

    Debts

    Long Term Debt/Equity Last Quarter 0.00% 25.15%

    Long Term Debt/Equity (TTM) 0.00% 41.61%

    Total Debt/Assets (TTM) 13.26% 19.73%

    Total Debt/Capital 18.35% --

    Total Debt/Capital (TTM) 18.35% 25.29%

    Total Debt/Equity 22.65% 31.43%

    Total Debt/Equity (TTM) 22.57% 50.07%

    Current Ratio (TTM) 2.07 3.14

    Payout Ratio (TTM) 69.44% 47.20%

    2014 (03/31 - 12/31)

    Current Assets

    Cash and Short-Term Investments – Total 248

    Receivables – Total 204

    Inventories – Total 172

    Current Assets – Other – Total 23

    Current Assets Total 648

    Non Current Assets

    Property Plant and Equipment – Total (Net) 59

    Investment and Advances – Equity --

    Investment and Advances – Other --

    Intangible Assets – Total --

    Key Component

    Goodwill 28

    Non-Current Assets – Other – Total 53

    Non–Current Assets Total 113

    ASSETS TOTAL 760

    2014 (03/31 - 12/31)

    Liabilites

    Current Liabilities

    Debt in Current Liabilities 106

    Account Payable/Creditors – Trade 139

    Income Taxes Payable 19

    Current Liabilities – Other 25

    Current Liabilities Total 289

    Long–Term Liabilities

    Long-Term Debt Total 0

    Deferred Taxes and Investment Tax Credit --

    Liabilities (Other) 3

    Long-Term Liabilities Total 3

    Liabilities Total 292

    Minority Interest – Balance Sheet 4

    Shareholders' Equity

    Preferred/Preference Stock – Total 0

    Common/Ordinary Equity – Total 466

    Shareholders' Equity Total 466

  • Report this Comment On June 02, 2014, at 10:00 AM, JAVKO wrote:

    And the response from Motley Fool?

    Was the article full of air or do you have anything substantial to back you up?

    This is a matter of credibility, not filling the pages with words!

  • Report this Comment On June 02, 2014, at 11:15 AM, fpost wrote:

    I have to agree with the others.Himax isn't dependent on Google. This is just another example of the poor research by fool writers anymore though.At one time the FOOL was fairly accurate about stuff they let get published. I don't think they review anthing anymore. Basically anyone can now write for the FOOL and get published. It's basically not worth reading their stuff anymore because you never know when it's it going to be anything other garbage.

  • Report this Comment On June 02, 2014, at 12:00 PM, tikalien wrote:

    What are the chances that Google will exercise their option of increasing their stake in HIMX to 14.8%?

  • Report this Comment On June 02, 2014, at 12:28 PM, xDiver619x wrote:

    From the AP - a reputable news source that at least vets their articles.

    Chances are likely Google exercises their option in Himax.

    SAN FRANCISCO -- Google is amassing cash overseas to help finance a foreign shopping spree that could cost the Internet company up to $30 billion.

    The potential price tag for Google's expansion plans outside the U.S. surfaced Tuesday in documents disclosing the company's response to recent questions raised by the Securities and Exchange Commission.

    Pressed to provide more details about its plans for its overseas cash, Google revealed that $20 billion to $30 billion is earmarked for the acquisition of foreign companies and technology rights held outside the U.S. The Mountain View company didn't specify a timetable for completing the deals or mention any acquisition candidates.

    Google nearly pulled off a major acquisition late last year, according to the letter to the SEC. The company said it was in talks to buy a foreign company before abandoning the negotiations shortly before writing the Dec. 20, 2013, letter. Although the letter is five months old, the SEC didn't release it until Tuesday.

    Google declined to comment on the letter.

  • Report this Comment On June 05, 2014, at 1:44 PM, xDiver619x wrote:

    Hey Harsh what to eat some crow?

    Himax's Front-Lit(TM) LCoS has met the accelerating specifications of head-mounted technologies' display requirements such as a rich and bright image, a compact footprint, and low power consumption. Front-Lit(TM) LCoS produces over 10,000 nits of brightness and more than 50 nits/mW efficiency - the highest recorded ratio in the entire industry. The module also unites several new head-mounted technology requirements. These are: 1) a simplified optical engine manufacturing process similar to OLED's, 2)the high light efficiency of LCoS and, 3) the flexibility to adapt to various resolutions of LCoS. According to Himax's HDI team, Front-Lit(TM) LCoS is receiving significant interest by conference attendees including Himax's current roster of LCoS design clients and new entrants into the augmented-reality ("AR") and virtual-reality ("VR") technology space.

    ALSO, AS FAR AS PRODUCTION CAPACITY -

    The design and production of Himax's LCoS displays spans more than a decade and includes brand-leading and specific application design clients and customers developing products for mass and niche markets. Himax currently maintains an in-house LCoS production facility in Taiwan which has a proven shipping record of up to 300,000 units per month. The Company has also stated that it can quickly expand capacity to up to 2.0 million units per month at their current location.

    You should have done your homework before writing this article......

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