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Here's Why the Best Is Yet to Come for Himax Technologies, Inc.

By Tim Brugger - Dec 18, 2017 at 7:46AM

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The display driver company admittedly had a rough start to the year, but the road ahead looks awfully good.

CEO Jordan Wu didn't pull any punches earlier this year regarding some hiccups that negatively impacted Himax Technologies (HIMX 4.29%) results. The good news for investors that were able to see beyond the next quarter is Himax has already rewarded them handsomely this year.

The better news is that the best is yet to come for Himax. With its snafus behind it, a cutting-edge new technology nearly ready to hit the streets, and customers clamoring for more, 2018 and beyond will likely see explosive growth.

A woman using a laptop

Image source: Getty Images.

The silver lining

One of the problems Himax faced was a lack of production capacity. Himax's wafer-level optics (WLO) -- a core solution for smartphone cameras -- revenue suffered because it simply didn't have the capacity to fill orders. That was part of the reason Himax initiated an $80 capital expenditure initiative that it has already tapped into.

The flip side to the WLO hiccup is that it occurred because customers wanted more, and they wanted it now. If there's such a thing as a good problem, increased demand from end users is it. Himax has not only remedied its supply and demand issue with the completion of a new facility, but it expects to tap into phase two of its capex initiative of another $80 million.

The additional spending is to ensure Himax is able to meet demand for even greater WLO, new products in development, and display drivers. Getting its ducks in a row for a blowout 2018 is one of the reasons the best is yet to come for Himax.

Another area that might be viewed as a negative by some are Himax's revenue comparison's year over year. However, given the company's admittedly so-so results until recently, sequential comps offer a clearer picture of the direction it's headed, which is up.

Show me the money

Himax is actively working to diversify its product mix, and it was clear in the third quarter that it's working. Nondriver revenue of $55 million was up 86% sequentially and now equates to 28% of revenue, well above last year's 21.5%. The rise in sales of both driver and nondriver solutions resulted in total revenue soaring 30% sequentially to $197.1 million.

Large panel revenue was up 5.4% sequentially to $54.9 million, and in another example of Wu's product diversification efforts, now equals 27.9% of sales, well below the previous quarter's 34.4%. Himax's largest unit, small and medium display drivers, reported a 24.5% sequential revenue jump to $87.2 million. Smartphone sales rebounded from a slump earlier in the year, climbing 30% compared to the second quarter.

A chip inside a technology device.

Image source: Getty Images.

Wait until you see this

Himax's latest game-changing offering is a 3D sensing product called SLIM it designed in partnership with Qualcomm specifically for Android devices. Part of the aforementioned capex will be used to further expand production to meet SLIM demand of 2 million early next year. Already, Himax is getting positive feedback and lining up new customers for SLIM.

Himax is not the only manufacturer boasting a new sensing technology. Synaptics (SYNA 4.79%), one of Himax's chief competitors, recently announced its own sensing breakthrough. Synaptics claims its new optic sensors called Clear ID will be the first of its kind to be mass-produced for smartphones.

One of the most talked about features of Apple's latest iteration of the iPhone is its built-in sensing solution. But Himax is focused on Android devices, far and away the world's most popular operating system (OS). And with mass production slated for the first quarter of 2018, it won't be long until Himax's top line swells.

In addition to its many growth drivers, another reason I'm bullish on Himax is Wu. Unlike some CEOs, he didn't try to sugarcoat Himax's "misses" early this year. Instead, Himax delivered as promised with a strong third quarter. So if Wu says hold on to your seatbelts, you know the best is yet to come for Himax.

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.

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Stocks Mentioned

Himax Technologies, Inc. Stock Quote
Himax Technologies, Inc.
HIMX
$7.53 (4.29%) $0.31
Synaptics Incorporated Stock Quote
Synaptics Incorporated
SYNA
$146.75 (4.79%) $6.71

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