Himax Technologies, Inc. (ADR) (NASDAQ:HIMX), Himax Technologies, Inc. (ADR)a leading supplier and fabless manufacturer of display drivers and other semiconductor products, announces financial results for the second quarter ended June 30, 2015.
|Second Quarter 2015 Results Compared to Second Quarter 2014 Results (USD in millions) (unaudited)|
|Q2 2015||Q2 2014||CHANGE|
|Net Revenue||$169.2 million||$196.4 million||-13.9%|
|Gross Profit||$40.3 million||$47.5 million||-15.1%|
|GAAP Net Income Attributable to Shareholders||$8.8 million||$24.1 million||-63.4%|
|Non-GAAP Net Income Attributable to Shareholders||$9.3 million (1)||$24.5 million (1) (2)||-61.8%|
|GAAP EPS (Per Diluted ADS, USD)||$0.051||$0.140||-63.4%|
|Non-GAAP EPS (Per Diluted ADS, USD)||$0.054 (1)||$0.142 (1) (2)||-61.8%|
|(1) Non-GAAP Net income attributable to common shareholders and EPS excludes $0.4 million of share-based compensation expenses, net of tax and $0.1 million non-cash acquisition related charges, net of tax.|
|(2) Q2 2014 GAAP and Non-GAAP numbers include one-time investment gain of $8.5 million, or 5.0 cents.|
|Second Quarter 2015 Results Compared to First Quarter 2015 Results (USD in millions) (unaudited)|
|Q2 2015||Q1 2015||CHANGE|
|Net Revenue||$169.2 million||$179.0 million||-5.5%|
|Gross Profit||$40.3 million||$46.0 million||-12.5%|
|GAAP Net Income Attributable to Shareholders||$8.8 million||$12.6 million||-29.7%|
|Non-GAAP Net Income Attributable to Shareholders||$9.3 million (1)||$13.1 million (1)||-28.5%|
|GAAP EPS (Per Diluted ADS, USD)||$0.051||$0.073||-29.7%|
|Non-GAAP EPS (Per Diluted ADS, USD)||$0.054 (1)||$0.076 (1)||-28.6%|
|(1) Non-GAAP Net income attributable to common shareholders and EPS excludes $0.4 million of share-based compensation expenses, net of tax and $0.1 million non-cash acquisition related charges, net of tax.|
“We are pleased to report that our 2015 second quarter revenue, gross margin, GAAP and non-GAAP earnings per diluted ADS all met at the high end or exceeded our guidance for the quarter,” stated Mr. Jordan Wu, President and Chief Executive Officer of Himax. “During our first quarter 2015 earnings call, we mentioned the industry’s low visibility, especially in China’s smartphone market. Yet, we were able to arrive at top end of our revenue guidance and beat EPS guidance because our driver IC business came in better than expected across all applications. We were pleased to see a snapback during the second quarter from our Chinese branded smartphone end customers. TV, as projected, was another bright spot among our driver IC products.”
Mr. Wu concluded: “Recent instability in the Euro zone and unease in the Chinese stock market have added concern, however we believe these macroeconomic factors will be a temporary setback. As a diversified company, we are committed to our growth strategy and have continued to add new customers, advance through new design-wins, and introduce new technologies such as TDDI and AMOLED driver IC. Lastly, we are making significant progress in our non-driver business and look forward to providing updates as we reach inflection points for both LCOS and WLO.”
Second Quarter 2015 Financial Results Breakdown by Product Line (USD in millions) (unaudited)
|Q2 2015||%||Q2 2014||%||% Change|
|Display drivers for large-sized panels||$54.3||32.1%||$50.8||25.9%||+6.9%|
|Display drivers for small/medium-sized panels||$82.8||48.9%||$107.0||54.5%||-22.6%|
|Q2 2015||%||Q1 2015||%||% Change|
|Display drivers for large-sized panels||$54.3||32.1%||$57.6||32.2%||-5.7%|
|Display drivers for small/medium-sized panels||$82.8||48.9%||$87.0||48.6%||-4.9%|
Himax’s second quarter revenue of $169.2 million represented a 13.9% decrease from the second quarter of 2014 and a 5.5% sequential decrease from the first quarter of 2015. Revenue from large panel display drivers was $54.3 million, an increase of 6.9% from the second quarter of 2014, and down 5.7% sequentially. Large panel driver IC accounted for 32.1% of total revenues for the second quarter, compared to 25.9% a year ago and 32.2% in the last quarter. The year-over-year increase in total revenue was a result of market share gain from its Chinese panel customers and accelerated 4K TV shipments during the quarter, yet the sequential decrease was caused by continued weakness in the monitor market.
Revenue for small and medium-sized drivers was $82.8 million, down 22.6% from the same period last year and down 4.9% sequentially. Driver ICs for small and medium-sized applications accounted for 48.9% of total sales for the second quarter, as compared to 54.5% a year ago, and 48.6% in the previous quarter. While the overall demands in mobile devices are still trending down, the decline of Himax’s small and medium driver IC business was much smaller during the quarter compared to the last quarter. This was mainly because sales from its Chinese branded smartphone end customers, who were trailing behind the competition in the first quarter, rebounded strongly in the second quarter. The growth from Chinese branded smartphone customers was however largely offset by business from key Korean end customer who was going through product transition during the quarter. The Company’s Chinese end customers are using a multi-branding strategy in new sales channels such as e-commerce and direct sales points to gain market share back in China and exploring the long-awaited export opportunities. Meanwhile, Himax’s key Korean customer has decided to strategically increase the weight of AMOLED panels in their smartphone product portfolio. The transition in product development left a gap in Himax’s second quarter smartphone driver IC business as Himax has been its major TFT LCD driver IC outsourcing partner since 2012. The Company has foreseen this issue and worked on the development of AMOLED driver products. Himax believes that shipments of AMOLED panel drivers to both Korean and Chinese customers starting the second half of 2015 will help lift its smartphone driver sales going forward. For driver ICs used in tablets, sales stabilized after 3 consecutive quarters of decline. As for driver ICs used in automotives, revenues remained robust during the quarter.
Revenue from Himax’s non-driver businesses were $32.1 million, down 16.8% from the same period last year and down 6.6% sequentially. Non-driver products accounted for 19.0% of total revenue, as compared to 19.6% a year ago, and 19.2% in the previous quarter. Within the Company’s non-driver business segment, the main contributors included timing controllers, programmable gamma OP, touch panel controllers, CMOS image sensors, power management ICs, LCOS microdisplays, WLO, and ASIC services. As Himax reported in the last earnings call, quite a few of its non-driver business segments were affected by the weakness in the China market, particularly in the smartphone and tablet segments, which resulted in the sequential decline of the non-driver businesses.
GAAP gross margin for the second quarter of 2015 was 23.8%, a 40 basis points decrease from 24.2% in the same period last year and down 190 basis points from 25.7% in the previous quarter. As previously guided, the sequential decline was mainly due to unfavorable product mix.
Second quarter GAAP operating expenses were $31.4 million, up 8.3% from the same period a year ago and up 3.4% from the previous quarter. Operating expenses increased from the second quarter of 2014 due to higher expenses for additional headcount to support new projects, annual salary increases, and an increase in R&D expenses. The quarter-over-quarter operating expense increase reflected increase in R&D expenses. In response to the bearish market sentiment, Himax has started expense control since the beginning of the year. However, in selective areas, mainly WLO and LCOS, the Company is still expanding right now. The combined total headcount of the two areas is expected to be up by around 230 during the year.
GAAP operating income for the second quarter of 2015 was $8.9 million or 5.2% of revenue, down 51.9% year-over-year and down 43.3% sequentially. The decline was mainly due to lower sales, decreased gross margin, and higher expenses in the quarter.
Reported GAAP net income for the second quarter of 2015 was $8.8 million or 5.1 cents per diluted ADS, compared to $24.1 million, or 14 cents per diluted ADS, for the same period last year, and $12.6 million, or 7.3 cents per diluted ADS, in the previous quarter. GAAP net income declined 63.4% year-over-year and declined 29.7% from the previous quarter. The year-over-year decline was due to lower sales and gross margin, higher operating expenses, and a one-time investment gain of $8.5 million or 5.0 cents in the second quarter last year. Excluding the one-time investment gain influence, our GAAP net income declined 51.3% year-over-year. The sequential decline was due to lower sales and gross margin in the quarter.
Non-GAAP net income in the second quarter was $9.3 million, or 5.4 cents per diluted ADS, representing a decline of 61.8% year-over-year and a decline of 28.5% sequentially. As previously mentioned, excluding the one-time investment gain, non-GAAP net income decreased 49.2% year-over-year.
Balance Sheet and Cash Flow
Himax had $164.5 million of cash, cash equivalents, and marketable securities at the end of June 2015, down from $172.9 million during the same time last year, and down from $178.8 million last quarter. In addition to its cash position, Himax’s restricted cash was $130.0 million at the end of the quarter. The restricted cash is mainly used to guarantee the company’s short term loan for the same amount. Himax remains a debt-free company.
Inventories as of June 30, 2015 were $189.6 million, up from $166.3 million for the same period last year and up from $186.1 million last quarter. As mentioned in the last earnings call, the Company has been expecting customer restocking after the Chinese New Year and market demand only picked up by late second quarter, which has resulted in higher inventories. Himax believes it will be able to lower these inventory levels starting the third quarter of the year. Accounts receivable at the end of June 2015 were $182.3 million, as compared to $199.0 million for the same period last year, and $192.7 million last quarter. DSO was 95 days at end of June 30, 2015, as compared to 92 days the same period a year ago and 97 days at end of the last quarter.
Net cash outflow from operating activities for the second quarter of 2015 was $13.8 million, as compared to cash inflow of $22.9 million for the second quarter of 2014, and cash outflow of $3.7 million for the first quarter of 2015. The widening cash outflow quarter-over-quarter was mainly due to an income tax payment of $9.6 million. Both the year-over-year and sequential declines were mainly due to higher inventory and a decrease in accounts payable, offset by lower accounts receivable in the quarter.
Capital expenditures were $2.0 million during the second quarter of 2015 versus $3.8 million for the same period last year, and $1.8 million last quarter. Among other things, Himax continued to expand our clean room facilities for WLO product line during the quarter.
Fiscal Year 2014 Dividend Declaration
During the second quarter, the Company declared its annual cash dividend of 30 cents per ADS, totaling $51.4 million, which was paid out in July. Himax’s dividend is determined primarily by the prior year’s profitability. The Company’s decision to pay out 77.5% of last year’s net profit demonstrates the Company’s continued support for its shareholder base and confidence in its long term profitability.
Share Buyback Update
As of June 30, 2015, Himax had 171.2 million ADSs outstanding, unchanged from the last quarter. On a fully diluted basis, the total number of ADSs outstanding is 172.2 million.
2015 Investor Outreach and Conferences
Ms. Jackie Chang, CFO, Ms. Nadiya Chen and Ms. Penny Lin, internal IR Managers, and Mr. Adam Holdsworth, Himax’s US-Based IR, will maintain investor marketing activities and attend future investor conferences in the U.S. and Asia. If you are interested in speaking with Management and taking meetings with the Company, please contact Himax’s US or Taiwan-based investor relations contact at the numbers below.
Himax started 2015 with a sluggish first quarter and a soft forecast for the rest of the year as a result of weak overall market demands, especially those from China. The recent economic instability in the Euro zone and turmoil in the Chinese stock markets have added uncertainty to the demands of consumer electronics in the second half. More specifically, weaker demands have led to the softening of panel prices and lower capacity utilization of panel manufacturers. Consequently, Himax anticipates its gross margin will decline during the third quarter. Himax continues to evolve and remains confident about new growth opportunities ahead. Several developments should provide a strong contribution to future quarters such as adding new customers, new design-wins, introducing new TDDI products for smartphones, market share gains for large panel driver ICs, and significant advancements in the non-driver businesses. Furthermore, Himax believes that its LCOS and WLO businesses will hit an inflection point during the second half of the year and will update shareholders accordingly.
In Himax’s large panel driver IC business, after two strong quarters of shipment in TV application, the Company is starting to experience shipment slowdowns in TV along with continuous softness in notebooks and monitors. Hence, the Company will see sequential decline by low teens in this segment in the third quarter. However, Himax believes 3Q weakness is a temporary setback. As the Company has repeatedly stated, 2015 will be a year for its large panel driver IC business to post year-over-year growth amid poor market conditions. Himax is still gearing up its engineering collaboration and design-in activities with Chinese panel customers, who, despite low market sentiment, are still adding new capacity after years of continuous expansion. The new capacity in China represents further growth opportunities for Himax with projected shipment growth and market share gains throughout the rest of 2015 and beyond. On top of that, sales of 4K TVs are tracking better now than the beginning of the year as Chinese panel customers are embracing the 4K TV market with mid-to-low end models that should stimulate purchase interests. Thus, the Company remains positive on the outlook of its large panel driver IC business this year and also going forward.
The other segment in the Company’s driver business are ICs used in small and medium-sized panels for applications including smartphones, tablets and automotive. Himax highlighted in its previous earnings call that it was cautious in its second quarter outlook; however, the Company experienced a snapback in Chinese customers’ smartphone demand due to certain brand end customers’ market share gains through new model launches, and change in their marketing strategy and sales channels as mentioned earlier. It therefore exited the second quarter with smartphone sales tracking better than the Company expected. Despite the muted market demand, panel resolution will continue to get upgraded. Himax is positive that resolution above HD720, especially FHD, will accelerate from the third quarter and go on for the rest of the year. Its QHD driver IC shipment also started at the end of the second quarter, following the design win with a brand customer as reported in the previous earnings call. Meanwhile, for FHD and beyond, the preferred technology would be LTPS TFT-LCD since it allows higher pixel density and more circuit integration with less power consumption. Himax is pleased to see more and more Chinese panel makers, following Korean and Japanese players, entered mass production for high resolution panels at their new LTPS facilities aggressively. Such progress means more business opportunities for the next few years for Himax as the Company has longstanding and solid business relationships with the Chinese panel makers. Himax believes FHD and QHD will account for a growing percentage of its smartphone driver IC revenue starting this quarter.
Himax discussed on its last call two other areas that the Company believes will fuel the next growth drive in its small and medium driver IC business, namely AMOLED driver IC and TDDI technology, which integrates driver IC and touch panel controller IC into one.
On the AMOLED driver IC front, Himax continues to collaborate closely with multiple panel customers in Korea and China, some of which are likely to see meaningful volume late this year. There are few competitors in this marketplace and the Company is well positioned, having been previously engaged by numerous existing and new AMOLED panel makers in their new panel developments. It is worth mentioning that major Chinese panel makers have announced the building of new AMOLED projects, and Himax believes it is in a good position to be a major beneficiary. The Company looks forward to working with its customers as the market for this technology expands.
For driver ICs used in tablets, following three consecutive quarters of decline, the market stabilized in the second quarter and, as previously indicated, may improve in the second half of the year. The Company’s observations remain that the trend for the panels in the mainstream tablet market will be upgraded to 10″ and above with higher resolutions, from the once popular sizes of 7″ to 9″. This is a favorable trend to the driver IC demand. However, its contribution to Himax’s sales will not be significant until 2016.
Among driver ICs used in small and medium-sized panels, the best-performing category in 2015 is for automotive applications. Himax has successfully engaged key panel manufacturers and module houses for long-term partnerships and secured leading market share in this segment. Himax anticipates second half sales to grow by high teens compared to the first half, which will also lead to high-teens growth year-over-year. Himax’s ICs are well recognized by numerous tier 1 automobile brands globally, thus it is well positioned to take advantage of this growing market which honors its long product life cycle, stable pricing, and higher gross margins when compared with rest of the segments in small and medium panel driver ICs.
Compared to the previous quarter, the Company’s small and medium-sized driver segment will decline low single digit in the quarter sequentially.
For the past few years, the non-driver business segment has been Himax’s most exciting growth engine. New product development continues to evolve and gain traction, and the Company remains positive on the long-term growth prospect of its non-driver businesses.
Himax’s touch panel controller product line declined sequentially in the second quarter as it has foreseen in the previous earnings call. As the Company enters the third quarter, several of its on-cell design-wins will start mass production at multiple major end customers. On top of that, it is also excited about the technological advances and product development progress in the latest pure in-cell technology, where Himax is one of the pioneers in offering one-chip solutions integrating driver IC and touch panel controller, or TDDI. Driven by leading TFT-LCD makers, the industry is moving towards pure in-cell panels, which remains set to start mass production in the second half of this year. Himax is in partnerships with essentially all of the leading panel manufacturers, module houses, and OEMs in pure in-cell touch for joint technological development, and feel there is a strong market for these products ahead with fewer competitors.
Himax’s CMOS image sensors experienced a slow first half since 4G smartphone adoption in China remained weak. The lack of smartphone replacement demand hurt the shipments of its high end product offerings. Entering the third quarter, the Company is pleased to report that it has secured several new customers in the second half mass production pipeline with its 8-megapixel and 13-megapixel sensors.
Regarding the Company’s LCOS business, Himax continues to collaborate with industry heavy weights by providing tailor made designs for their head mounted devices, and the Company remains enthusiastic about the projects in the pipeline. As stated, Himax’s LCOS and WLO businesses will hit an inflection point this year as it is gearing up for increasing pilot production shipments now, with expected volume ramping thereafter. The Company already secured a piece of land which is 5 hectares in size and is conveniently located nearby its headquarter building in Tainan, Taiwan. Himax has started planning for the construction of a new manufacturing/office facility with first phase investment of approximately $40 million in order to meet customers’ desired output. The first phase construction will occupy just around 20% of the newly secured land, leaving plenty of space for future expansion. The investment will be financed through the Company’s internal resources and existing bank facilities, if needed. While Himax remains debt free as mentioned earlier, it does enjoy great support from banks that have provided the Company with plenty of unutilized facilities. Once started, the construction is expected to be completed in 12-18 months. This progress is sooner than the Company thought when it last reported. Himax will report further details in due course.
Furthermore, Himax continues to partner with numerous industry leading players using its industry-dominant wafer level optics, or WLO, for the development of three technologies of the future, namely array cameras, special purpose sensors, and microdisplay wave-guides for head-mounted displays. As its top-tier customers begin to mass produce products embedding these new technologies, Himax, being in the heart of that supply chain, should benefit significantly. However, the Company would like to remind investors that it believes, like HMD, while WLO can enable cutting edge products, such products are early stage in nature. Himax, along with its partners, are pioneers in these technologies and are committed to bringing them into commercialization.
Overall, the Company expects its non-driver segment to decline mid single digit sequentially in the third quarter.
Third Quarter 2015 Guidance
The Company is providing the following financial guidance for the third quarter of 2015:
|Net Revenue:||To be down 5% to 9% as compared to the second quarter of 2015|
|Gross Margin:||To be down about 1.5% from the second quarter of 2015|
|GAAP EPS:||-1.5 to -0.9 cents per diluted ADS, as compared to 5.1 cents reported in the second quarter of 2015|
|Non GAAP EPS(1):||1.0 to 1.6 cents per diluted ADS, as compared to 5.4 cents reported in the second quarter of 2015|
|(1) Non-GAAP EPS excludes share-based compensation and acquisition-related charges|
As the Company has done in the past, its third quarter GAAP earnings per diluted ADS guidance has taken into account its expected 2015 grant of restricted share units, or RSUs, to Himax team at the end of September. The grant of RSUs would lead to higher third quarter GAAP operating expenses compared to the other quarters of the year.(Original Source)
Shares of Himax closed yesterday at $6.76. HIMX has a 1-year high of $10.45 and a 1-year low of $5.85. The stock’s 50-day moving average is $7.92 and its 200-day moving average is $7.09.
On the ratings front, Himax has been the subject of a number of recent research reports. In a report issued on July 7, Chardan analyst Jay Srivatsa upgraded HIMX to Buy, with a price target of $13, which represents a potential upside of 92.3% from where the stock is currently trading. Separately, on June 17, Northland Securities’ Tom Sepenzis reiterated a Buy rating on the stock and has a price target of $11.
According to TipRanks.com, which ranks over 7,500 financial analysts and bloggers to gauge the performance of their past recommendations, Jay Srivatsa and Tom Sepenzis have a total average return of 8.8% and 11.1% respectively. Srivatsa has a success rate of 35.7% and is ranked #924 out of 3728 analysts, while Sepenzis has a success rate of 39.1% and is ranked #827.
Overall, 2 research analysts have rated the stock with a Sell rating, one research analyst has assigned a Hold rating and 2 research analysts have given a Buy rating to the stock. When considering if perhaps the stock is under or overvalued, the average price target is $6.50 which is -3.8% under where the stock closed yesterday.
Himax Technologies, Inc., designs, develops and markets semiconductors that are critical components of flat panel displays. Its main products are display drivers for large-sized TFT-LCD panels.