The scuttlebutt of late regarding Himax Technologies (NASDAQ:HIMX) is that its non-driver unit may be off to a slow start this year. In response to that chatter, investors have sold off the stock, driving Himax below $10 a share as of Thursday morning. Unfortunately for shareholders, the bearish sentiment goes further back than the recent "bad" news.
However, not only are Himax bears overreacting to an unlikely short-term "situation," they'll be proven wrong for a couple of reasons. The upside to all the negativity is that Himax stock has become even more attractive for growth investors with an eye toward the future.
A year ago, Himax openly admitted that revenue from its wafer level optics (WLO) -- the primary source of its non-display driver sales -- was going to come up short. Though the problem was a good one to have -- too much customer demand -- Himax needed to ramp up its production capacity. Product development delays also hampered its results for the first two quarters of 2017.
Not surprisingly, the grumbling from Himax bears was strident. The bad feelings directed at the Taiwan-based chipmaker, and CEO Jordan Wu in particular, really came to a head in early December, when a Citroen Research analyst posted a nasty tweet, including a choice word or two that I won't repeat here, alleging some fairly unseemly things.
In addition to the unprofessional verbiage, the analyst accused Wu of fraud because the company missed quarterly earnings expectations. Thing is, Wu openly admitted the aforementioned hiccups would negatively impact results. No CEO-speak, no excuses, simply the truth. Wu denied the analyst's allegations, and as Himax's stunningly strong third quarter demonstrated, Wu is fulfilling his promise.
Told you so
There were many things to like about Himax's Q3, but its non-driver results -- led by WLO product shipments -- topped the list. On a sequential basis, non-driver sales of $55 million was a mind-boggling 89% increase. The better news is that non-driver revenue now accounts for a record 28% of Himax's total sales of $197.1 million.
As for the notion that WLO sales will slow, Himax cited last quarter's ramp-up of shipments for its new WLO product as an indicator that it was poised for a strong fourth quarter and 2018. Himax was able to meet customer demand after completing a new manufacturing facility, just as Wu had said a year ago would happen. To meet future demand, Himax will expand the facility's capacity even further, beginning this quarter.
The new facility will also deliver another key growth driver: a new SLiM 3D sensing solution designed specifically for Android smartphones. Himax and Qualcomm partnered on the product, which is expected to begin shipping by mid-2018.
Another relatively new initiative is Himax's push into the the fast-growing smart car and infotainment systems markets. The automotive unit's revenue of "more than $20 million" was a record, an up more than 20% from a year ago. Of course, the smart car and infotainment system markets are crowded with Himax's competitors, including display and sensing solution provider Synaptics (NASDAQ:SYNA).
Synaptics' reliance on mobile sales is ebbing as it explores car infotainment displays and similar solutions, but it continues to grow. Last quarter's $417.4 million in revenue was an 8% improvement, and Synaptics' earnings per share also rose. Excluding one-time items, the industry darling's earnings were up 7% to $1.03 a share.
When it's all said and done
While competitors like Synaptics have hit the ground running in 2018 -- its stock is up 15% this year -- Himax's many naysayers have pushed its shares down 10%. But don't let the bearish pundits fool you: Himax, with its 2.45% dividend yield, remains a sound, long-term growth alternative.
Given the dour predictions, investors have even more interest in Himax's Q4 earnings release, which is scheduled for Feb. 15. But don't be surprised when it reports yet another strong quarter, just as Wu has promised.