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Himax Technologies, Inc. (ADR) (HIMX): Breaking This Google Inc (GOOG) Glass Play Down

Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) has been on a tear this year, appreciating close to 150%. The stock suddenly came into the spotlight earlier this year after it was revealed that it would be supplying a key component to Google Inc (NASDAQ:GOOG) for the Google Glass. And then, Google Inc (NASDAQ:GOOG) agreed to finance its display business last month.

It would be an understatement to say that shares have taken off after these events, as Himax Technologies, Inc. (ADR) (NASDAQ:HIMX)’s tremendous run has won it a few zealous supporters. But many seem to forget that the company had done well even before the Google Inc (NASDAQ:GOOG) Glass hype came into play, and early movers into the stock would now be sitting on nice gains.

Google Inc.

But at this point, Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) looks like a risky investment, which is driven more by hype rather than fundamentals. The recently released second-quarter results served a reminder that the shares have run up too much and expectations have been placed at elevated levels, and the company’s diversified business is being overlooked as Google Inc (NASDAQ:GOOG) Glass takes center stage.

Back to reality

So, it was not surprising when Himax Technologies, Inc. (ADR) (NASDAQ:HIMX) shares fell in double digits after the company failed to meet the Street’s revenue expectation in the previous quarter, and its guidance was way behind expectations. The company expects revenue between $182 million and $197 million, below the $219 million consensus.

Himax Technologies, Inc. (ADR) (NASDAQ:HIMX)’s display drivers are used across a variety of devices such as monitors, notebooks, TVs, tablets, smartphones, cameras, etc. and there’s a possibility that you’ll have a Himax driver in the screen on which you’re reading this. So, before we move to the chatter about Google Inc (NASDAQ:GOOG) Glass, let’s see how Himax’s other business units are doing.

This is bigger than Glass now

Large panel display drivers contributed around 30% to the top line in the previous quarter, a steep decline from the 42% in the year-ago period. The drop in sales was due to reduced sales to Innolux, which disposed its equity stake in Himax, in addition to sluggish demand for televisions and laptops. The Chinese government terminated its TV subsidy program in May and this affected Himax.

However, Himax is expecting a slight reprieve in this business going forward, counting on panel makers from Korea and Taiwan. It should be noted that the company probably supplies its display drivers to the likes of Samsung and many others, which is probably a good sign or bad, depending on your perspective.

Samsung has been working on its OLED TVs and launched its first model in June. The Korean company has witnessed certain production issues, resulting in faulty TVs and higher costs, and resulting in a whopping $13,000-price tag for its curved 55-inch OLED television. Also, analysts (Chung Won-suk of HI Investment & Securities) are expecting a slow pick up in OLED TV sales and expect that it will be another two years before they are sold in decent numbers.

Moreover, DisplaySearch expects 600,000 OLED TVs to be sold next year, a figure which is expected to jump massively to 7 million in 2016. Himax has been enhancing its panel production capacity as it expects more business from panel makers.

Even this one’s bigger than Glass

Coming to display drivers for small/medium-sized panels, this is where Himax has been witnessing rapid growth on the back of smartphones and tablets. This segment accounts for almost 54% of its top line and grew 32% in the previous quarter on a year over year basis. Strength in mobile devices along with automotive display applications have been the driving force behind this business.

But then, Himax management stated over the conference call that the short-term prospects of this business might be a bit soft. The transition by Chinese smartphone makers to newer models and inventory correction were headwinds. Himax also warned of price wars in budget smartphones that led to margin pressures, and eventually a loss of market share.

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