Why Himax Technologies Inc. Shares Plunged Today

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of Himax Technologies (NASDAQ: HIMX  ) fell more than 10% Monday, continuing last week's slide on unconfirmed reports Google Glass might not use Himax's display chips.

So what: However unlikely this situation is to pan out -- especially considering Google opened a significant stake in Himax last summer -- rumors of losing Big-G's support are certainly proving more pervasive than bullish Himax investors would like. As I suggested early last week, however, "Until we hear otherwise, Himax shares will likely remain under pressure."

It also doesn't help that Himax provided disappointing second-quarter revenue guidance a few weeks ago, but keep in mind Himax CEO Jordan Wu insisted the headwinds were only temporary.

Now what: Google isn't Himax's only customer, and it looks like much of the pessimism is priced in with shares trading at just 10 times next year's expected earnings. For patient investors who don't mind maintaining a long-term outlook, I think Himax could be a bargain today.

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  • Report this Comment On June 03, 2014, at 5:48 PM, xDiver619x wrote:

    Steve - at least your a "little" more objective than your co blogger Harsh. Although, all I've seen you write about regarding Himax seems pretty much every time they fall. Have you ever taken the time to peel a layer of the old onion and look at the company and fundamentals? They have a lot to offer.

    Why buy and hold Himax?

    Top tier customers globally – 200+ customers in Taiwan, China, Japan, Korea, US and Europe.

    2287 patents and 953 patents pending – these are worldwide patents!

    90% of their 1600 employees are engineers!

    Diversified revenues - mobile display drivers, CMOS image sensors, LCOS micro display solutions, touch panel controllers, timing controllers and ASIC service

    Display Driver Integrated Circuit market share leader

    31.6% of the company is insider ownership with NO insider trading!

    Consistent Revenue Growth

    Let’s look at what you call POOR guidance – they called for FLAT compared to 1Q14 – that means they will still have 10% growth comparing 2Q13 vs. 2Q14 and the same goes with Gross Margin. Just because they called for flat revenue versus the previous quarter DOES NOT MEAN they will not have YoY growth! Business's compare revenue growth vs. the same period for the previous year to determine if they are on track. I’ve worked in the corporate world for a Fortune 500 Company as a National Sales Manager and we didn’t give a squat about comparing Q1 to Q2 growth in the same year. Our business cycles were identical for the 30 years and we knew that sales are cyclical and growth is only measured by YoY.

    Himax has 5 subsidiaries – Himax Technologies Ltd, Himax Media Solutions, Inc., Himax Display, Inc., Himax Imaging, Inc. and Himax Analogic, Inc. Each one focuses on specific technologies.

    Let’s look at the Google investment into Himax Displays. Google more than likely hedged their bet for supply chain reasons and bought ownership so they have order priority. Himax is working with top tier customers developing prototypes using their display products and Google knows that they need to be positioned against delays in production due to demands from other customers.

    If Google wasn’t going to use LCOS in Glass, why would they waste precious time to bring a product to market and spend millions in development and design cost to just use Himax for product development and testing? I also know that changing critical components does NOT just happen overnight without months of field testing unless you want product problems. So it just doesn’t make sense that Google would just shift directions mid stream prior to even commercializing a product.

    Do you think there is a possibility that Himax is developing other technologies including OLED since they have 1440 engineers that work for the company?

    Here’s some of the products they manufacture – the market is tremendous and sales channel opportunities offer a larger total market potential than Google Glass.

    LCOS Modules for Head-Mounted Display, Head-up Display and Pico Projector applications

    MEMS Microdisplays and Controller ICs.

    Himax is working with multiple customers developing new applications of HMD, HUD and industrial applications using Himax LCOS panels. GOOGLE is NOT their only customer for LCOS and they are working with top tier manufacturers. You don’t hear much about these developments because they are under Non Disclosure Agreements.

    Look at their other technology – Detector Cameral, Array Camera, Pico Projecor - LCOS microdisplay (used by Google) and Mico Light Guide.

    Himax reduced their dependence on one single customer – Innoluxfrom 65% of their sales in 2009 to 16% in 2014. That goes to show you they are doing the right things to grow their business and protect it against market pressures and competition.

    Let’s look at a sample of Himax’s top customers –

    Foxconn – manufacturer of the iPhone

    Lenovo

    Sony

    Motorola

    Asus

    HP

    Samsung

    Sharp

    Panasonic

    LG Display

    3M

    Nikon

    NEC

    HTC

    Philips

    Epson – this company has glasses already available on the market!

    How about a CASH Dividend! This is a stock that pays a dividend and has since 2007!

    They have repurchased $158M in shares since 2007! Total cash returned to shareholds including dividend payment and share buyback amounted to US$427M since IPO.

    Himax is even with Renasas at 9.9 market share and are tied for 3rd in the display driver market.

    So regardless of the Google Glass fiasco, Himax is going to succeed without them. Google can’t even bring a product to market in a timely fashion and that should reflect in Google’s share prices not Himax. Himax will do just fine without Google, but the Google deal adds a small layer of icing to an extremely tasty layered cake that’s already full of icing between the layers!

  • Report this Comment On June 04, 2014, at 11:31 AM, TMFSymington wrote:

    @Diver619, Note many of my Himax articles of late aren't comprehensive analyses, but rather part of The Fool's "10% Promise" series -- with which we aim to help our readers quickly -- and yes, objectively -- understand why certain stocks are seeing wide swings in any given day. Himax's big moves of late happened to be downward, but I'll just as happily explain upward movement if/when it occurs.

    That said, I'm certainly aware of Himax's diversified business (hence my "Google isn't Himax's only customer" reference above), which is why I made it clear I'm still optimistic for its business over the long-term.

    One quick note, though, on Himax's guidance. Year-over-year growth does little to appease the market if it doesn't live up to expectations. Himax guidanced Q2 revenue to be flat sequentially around $194.6 million, but analysts were modeling Q2 sales of $223.2 million going into the report. So yes, it was "disappointing" in that sense, which is why Himax's CEO felt the need to explain the misfire. (See here for details: http://www.fool.com/investing/general/2014/05/08/why-himax-t... )

    Thanks for reading and commenting! And of course, Fool on.

    -

    Steve (TMFSymington)

  • Report this Comment On June 04, 2014, at 2:43 PM, xDiver619x wrote:

    Analyst opinions and projections don't hold water. They do not have insight into proprietary business information, such as new product development, new strategic relationships with companies developing gadgets with Himax technology. NDA's limit exposure and companies do not want to risk being accused of market manipulation. But hey, it's ok for analyst to pop off and say this stock is bad and spread unfounded rumors to help pile on negative sentiment and drive down a stock price further.

    To think that analyst can predict what a company's quarterly revenue should be, would be saying you can pick the winning lottery numbers. Yes they can make general assumptions but remember when you assume something you stand the chance of making and A$$ out of U and ME.

    In business, which I'm very well versed with a 25 year background as an entrepreneur and having worked for manufacturers as an executive, the only thing that matters is YoY growth and we never once sat in a board room discussing our Quarter 1 vs Quarter 2 growth projections. All forecast were made from the previous years sales results. That's were analyst FAIL and what's fundamentally wrong with the system.

    Just curious what's your business background and have you ever held a VP to C level position at a company with more than 500 employees? Have you ever started a business that generated more than $10M a year in sales?

    It seems like there are plenty of snot nosed arm chair quarterbacks out there being analyst that have never been in the trenches. Not saying you're one because that would be assuming, but it's obvious there are a few at Motley Fool.

    Would you also mind pointing out some of your positive articles from when Himax was on the rise in 2013. I couldn't find any but maybe have overlooked them....

  • Report this Comment On June 05, 2014, at 12:01 PM, TMFSymington wrote:

    @Diver619, To be clear, I agree completely on the relative insignificance of analysts' quarterly estimates. In fact, these short-term swings are what give long-term, capital-"F"-Foolish investors like you and me a huge advantage over Wall Street.

    And you were lucky to work at/start a company which didn't discuss quarterly projections. I can't say the same for the segments of two fortune 500 firms for which I've worked -- both publicly traded, one in retail, one in the defense and aerospace industry. I joined the latter originally as a small startup -- one which had to deal with chunky revenue from relatively large purchase orders with long sales cycles -- that was acquired by the larger corporation. Whether the higher-ups for both corporations wanted to admit it or not, there was far too much pressure to perform and meet quarterly expectations.

    As is obvious given my love for The Fool, I much prefer shunning those expectations. But we still can't ignore the big moves that can result from missing them -- as I wrote above -- "just in case they're material to our investing thesis."

    As for my past articles, Himax was on my radar, but I didn't cover it for the Fool 2013. Excluding this one, here are the 10%er's I've written on assignment based on its big moves over the past few months (whether it fell or rose, each one expresses my bullish sentiment):

    http://www.fool.com/investing/general/2014/03/10/why-himax-t...

    http://www.fool.com/investing/general/2014/05/08/why-himax-t...

    http://www.fool.com/investing/general/2014/05/09/why-himax-t...

    http://www.fool.com/investing/general/2014/05/27/why-himax-t...

    Cheers,

    Steve

  • Report this Comment On June 05, 2014, at 2:46 PM, xDiver619x wrote:

    Well we know the rumors are just that now. Himax's Front-Lit LCoS is just the start. They have many top tier design partners under NDA and will be announcing more products in the future.

    Yes, you have bullish sentiment in your recent articles. But, I still see no coverage of Himax by you from 2013 when they were on the up? Where were you then? How about writing a in depth analysis of this company for your readers?

    As far as revenue growth, it's the number at the end of the year that matters versus the previous year.

    I worked for BMI, who were some of your publicly traded companies?

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