09-30-2016, 02:15 AM
Himax Technologies (HIMX) is up 5% premarket after the company reiterated its Q3 and second half guidance this morning. The company reaffirmed its outlook in response to the recent decline in the stock. HIMX was testing resistance near the 11 level last week but then the stock fell ~20% on Monday after Nomura downgraded the stock to Neutral from Buy, citing the potential for a weak launch of Microsoft's (MSFT) HoloLens augmented reality device.
Himax makes display driver integrated circuits (IC) that go into large panel TVs, tablets and smartphones. Display drivers for large, medium and small sized panels accounted for 79% of revenue in its most recent quarter. However, many investors like Himax because of its LCOS and WLO product lines that are a key component for augmented and virtual reality (AR/VR) devices. HIMX has become a way to play AR/VR, even though it is still a tiny part of the overall business.
Himax did offer some commentary on that business to qualm fears this morning: Regards to the AR/VR business that many investors believe to offer the most exciting long term growth prospect, with little competition, the Company continues to work with 30+ customers for various AR devices using LCOS microdisplay and/or WLO with the list of customer still growing. The Company's design engagements cover leading companies in a wide variety of industries as well as niche players with innovative product ideas.
More of the Company's customers are expected to bring their AR products to the market next year. Having invested in related technologies for over 15 years, Himax is uniquely positioned as the provider of choice for microdisplay and related optics, both critical enablers to the AR device. The Company remains positive about its future prospects and technical feasibility of the AR/VR business.
This stock will remain volatile as the prospects for VR/AR play out in the coming months and years but the long term outlook appears favorable. Investors got burned in HIMX two years ago when the LCOS segment was a key supplier to the Google Glass, which inevitably flopped. HIMX trades at a reasonable or somewhat attractive valuation given its potential growth: 20x adjusted earnings and 1.8x sales -- 16x and 1.6x next year's estimates, respectively.
Himax [HIMX] reaffirms guidance after stock tumbles following downgrade at Nomura