Ambarella (NASDAQ:AMBA) and Himax Technologies (NASDAQ:HIMX) shareholders have been on a roller-coaster ride for the last year or so as both companies try to build sales around new technologies. While one looks to have a brighter short-term outlook, the other looks better set for longer-term success.

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High-definition and computer vision

Ambarella's 2017 revenue and earnings per share were down 5% and 67%, respectively. The picture painted for the first quarter of the new year wasn't much better, with management saying it expects revenue to fall as much as 15% from the same period a year ago.

The blame can be laid on falling sales at key partner GoPro (NASDAQ: GPRO), one of the biggest purchasers of Ambarella's high-definition video processing chips. Despite the declines, optimism has kept the stock afloat because non-GoPro revenue increased 10% last year. Most of that has come from the security camera and automotive industries as high-definition video has become increasingly important, especially in home monitoring applications like smart doorbells and cameras.

The company is also just beginning production of computer vision chips, which can be used in cameras, sensors, and other devices. Computer vision attempts to mimic how human sight works and apply it to things like self-driving vehicles, facial recognition in the security industry, and robotics.

Ambarella showed off some of those new computer vision capabilities at the International Consumer Electronics Show a couple of months ago, and CEO Fermi Wang said the company received quite a bit of interest from various manufacturers. As it continues to diversify away from struggling GoPro, computer vision could provide the next phase of overall business growth. But until then, Ambarella shares could continue to flounder.

Drawings of various electronic devices, such as a smartphone, a camera, and a laptop, each in a blue honeycomb-shaped cell. They're all connected.

Image source: Getty Images.

Legacy display drivers and 3D sensing

2017 was a rebound year for Himax. Its bread and butter are display drivers, the circuitry needed to power the displays on TVs, tablets, and smartphones, and in cars. Three-quarters of revenue came from display driver sales, which helped offset weakness in its other segments.

The display driver business, though, has been cyclical. The company depends heavily on manufacturers in China, which have been very inconsistent over the years. That has been reflected in the wild swings in share price. 2017 was no different, with hopes of a sustained rebound reversing and leading to full-year revenue and earnings-per-share declines of 15% and 45%, respectively.

This year, the company thinks TV sales will rebound and become the primary driver of revenue and profit growth. However, diversifying away from that business is key if Himax is to realize growth over the longer term. An attempt to break into the augmented reality market last year fell through when Microsoft put the brakes on its Hololens project, but a replacement growth catalyst has emerged.

This time around, Himax has a joint product with Qualcomm (NASDAQ: QCOM) producing 3D sensing technology for smartphones. The tech enables such things as facial recognition and could find its way into other areas like cars. Besides that, Himax hasn't given up on AR devices, and it is also developing computer vision chips. So far, nothing has been a sure winner. 

The winner is...

Based on management forecasts for 2018, Himax looks like the better buy in the short term. The company is expecting a rebound in big-screen TV display driver sales while Ambarella struggles to wean itself off GoPro. As a result, one-year forward growth is expected to be better for Himax.

However, Ambarella has had better success in designing chips for next-generation technology. With its lead in computer vision, which is a key component in the future of the security, automotive, and robotics industries, I think Ambarella could be the better pick in the long run. By contrast, the vast majority of Himax's sales rely on its legacy TV and smartphone display business, and the company has a long way to go to decrease its dependency on that segment.

Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Nicholas Rossolillo owns shares of Ambarella. His clients have positions in the stocks mentioned. The Motley Fool owns shares of and recommends Ambarella and GoPro. The Motley Fool owns shares of Qualcomm. The Motley Fool has a disclosure policy.