Himax Technologies (HIMX 3.45%) and NVIDIA (NVDA 2.21%) went in opposite directions this year, with the former sinking about 21% and the latter rallying about 25%. Will those trajectories continue through the rest of 2018? Let's take a closer look at both chipmakers to find out.
What do Himax and NVIDIA do?
Himax mainly sells display driver ICs (integrated circuits) for monitors, tablets, and smartphones. Sales of these components have fallen in recent quarters, due to cyclically soft demand for LCD screens.
Image source: Getty Images.
A smaller percentage of Himax's revenue comes from new nondriver components for augmented reality, virtual reality, and 3D sensing devices.
Himax currently leads the LCOS (liquid crystal on silicon) and WLO (wafer-level optics) markets. LCOS chips clarify images by blocking light with reflective crystals, making them crucial components for AR and VR headsets like Microsoft's HoloLens.
The WLO process produces cost-effective, miniaturized optical chips that shrink camera modules in consumer devices like the iPhone X. Himax also recently launched SLiM, a "3D sensing total solution" for smartphones, with mobile chipmaker Qualcomm (QCOM 0.74%).
A Tesla V100 GPU for data centers. Image source: NVIDIA.
NVIDIA generates most of its revenue by selling discrete GPUs, which are used in gaming PCs and data centers. Its gaming GPUs are generally more power-efficient than cards from its closest rival, AMD, while its high-end Tesla GPUs are used in data centers for machine learning purposes.
But over the past year, bulk orders of NVIDIA's GPUs by cryptocurrency miners caused a supply crunch, drove up market prices, and arguably alienated many of its core gamers.
NVIDIA also sells ARM-based Tegra CPUs, which are installed in connected cars, the Nintendo Switch, and other devices. It also sells the Tegra-powered Drive PX platform, which converts regular vehicles into autonomous ones.
How fast are Himax and NVIDIA growing?
Himax's revenue fell 15% annually to $658 million last year, due to double-digit declines in display driver sales. Its nondriver revenue, which accounted for 23% of its top line, also fell 4% due to the "discontinuation of LCOS and WLO shipments to a major AR customer."
Himax's non-GAAP net income plunged 43%, due to a combination of lower revenues and higher operating expenses. Those numbers look dismal, but Himax still expects "significant revenue and profit growth in 2018."
The main catalysts include the ramp up of SliM with Qualcomm, higher demand for 3D sensing solutions, stronger sales of automotive driver ICs, and the development of AMOLED driver ICs with Chinese OEMs. The growth of the VR and AR markets could also boost sales of its LCOS chips. That's why analysts expect Himax's revenue and earnings to rise 26% and 60%, respectively, this year.
NVIDIA's revenue rose 41% to $9.7 billion last year, fueled by robust demand for its gaming, professional visualization, and data center chips. However, sales of its automotive chips have slowed over the past few quarters, due to tougher competition from rival chipmakers like Qualcomm, which could soon become the world's top automotive chipmaker if it closes its planned takeover of NXP Semiconductors.
NVIDIA's non-GAAP earnings jumped 61%, as its new high-end chips, premium pricing power, and expansions into adjacent markets all boosted its margins. Wall Street expects NVIDIA's revenue and earnings to rise 28% and 35%, respectively, this year. Those growth figures look solid, but the volatile cryptocurrency market, new discrete GPUs from AMD (and possibly Intel), and more challengers in the auto market could crimp its growth.
The valuations and verdict
Himax trades at 28 times forward earnings, while NVIDIA has a forward P/E of 38. Himax also pays a hefty forward dividend yield of 3%, while NVIDIA's forward yield of 0.3% won't turn any heads.
I personally like both stocks at these levels, but I'd pick Himax over NVIDIA for three reasons. First, Wall Street expects accelerating growth from Himax but decelerating growth from NVIDIA. Second, Himax faces less direct competition in its high-growth LCOS and WLO markets than NVIDIA does in GPUs and CPUs. Lastly, Himax is fundamentally cheaper and sports a much higher yield.
