Himax Fundamentals Are Degrading As China's Smartphone Market Enters A Correction

Himax Technologies, Inc. (ADR) (NASDAQ: HIMX) reported preliminary Q4 EPS and margins short of expectations due to inventory write-downs. While Himax's in-cell touch design has been delayed, China’s smartphone market “appears to be correcting,” Baird’s Tristan Gerra said in a report.

Gerra downgraded the rating on the company from Outperform to Neutral, while slashing the price target from $10 to $4.

Q4 Results

Himax announced preliminary GAAP EPS at $0.026, missing the guidance range of $0.085-$0.011. Excluding an inventory write-down, the GAAP EPS would have been $0.086, Gerra noted. Revenue came in at $203.4 million, down 6.7 percent quarter-on-quarter, but in-line with the guidance.

Grim Outlook

The ongoing correction in China’s smartphone market would have a significant impact on the near-term sales of Himax's small panel driver ICs [Integrated Circuits]. Moreover, China’s notebook and television markets have recently been weak.

“China panel makers are expected to start adopting gate-in-panel technology this year, which would reduce driver IC content,” the analyst wrote. He added that while Himax's in-cell touch design had been delayed, OLED [organic light-emitting diode] ramp at China panel makers was unlikely before 2019.

“AR/VR [augmented reality / virtual reality] revenue outlook for 2017 has evaporated due to projects postponing, as OEMs continue to face design and price challenges. This could burden Himax's opex this year,” Gerra added.