Himax Technologies, Inc. (NASDAQ:HIMX) Q2 2025 Earnings Call Transcript

Himax Technologies, Inc. (NASDAQ:HIMX) Q2 2025 Earnings Call Transcript August 7, 2025

Himax Technologies, Inc. reports earnings inline with expectations. Reported EPS is $0.1 EPS, expectations were $0.1.

Operator: Hello, ladies and gentlemen, welcome to Himax Technologies, Incorporation Second Quarter 2025 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Ms. Karen Tiao, Head of IR PR at Himax. Ms. Tao, please go ahead.

Karen Tiao: Welcome, everyone, to the Himax Second Quarter 2025 Earnings Call. My name is Karen Tiao, Head of IR PR at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer, and Jessica Pan, Chief Financial Officer. After the company’s prepared comments, we have allocated time for questions in the Q&A section. If you have not yet received a copy of today’s results release, please e-mail hx_ir@himax.com.tw or himx@mzgroup.us, access the press release on financial portals, or download a copy from Himax’s website at www.himax.com.tw. Before we begin the formal remarks, I would like to remind everyone that some of the statements in this conference call, including the statements regarding expected future financial results and industry growth, are forward-looking statements that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in this conference call.

A list of the risk factors can be found in the company’s SEC filings, Form 20-F for the year ended December 31, 2024, in the section entitled Risk Factors as may be amended. Except for the company’s full year of 2024 financials, which were provided in the company’s 20-F and filed with the SEC on April 2, 2025, the financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFRS accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and external audits by an independent auditor to which we subject our annual consolidated financial statements, and may vary materially from the audited consolidated financial information for the same period.

The company undertakes no obligation to publicly update or revise any forward-looking statements, which as a result of new information, future events, or otherwise. On today’s call, I will first review Himax’s consolidated financial performance for the second quarter of 2025, followed by our third quarter outlook. Jordan will then give an update on the status of our business, and after which we will take questions. You can submit your questions online through the webcast or by phone. We will review our financials on an IFRS basis. During the second quarter, broadening U.S. tariff measures continue to intensify global trade tensions, heightening macroeconomic and demand uncertainty. This was compounded further by the abrupt and significant depreciation of the NT dollar against the U.S. dollar during the quarter.

Jordan will elaborate on the impact of NT dollar fluctuation on our financials in a moment. Despite these headwinds, we are pleased to report that our Q2 gross margin exceeded the guidance provided on May 8, 2025, while the gross revenue and profit came in within the projected range. Second quarter revenues registered $214.8 million, representing a sequential decline of 0.2%, better than the midpoint of the guidance range, which was a 5.0% decline to 3.0% increase. Gross margin was 31.2%, outperforming our guidance of around 31% and improving from 30.5% in the prior quarter, primarily driven by a favorable product mix. Q2 profit per diluted ADS was $0.095 within the guidance range of $0.085 to $0.115. Revenue from large display drivers came in at $24.9 million, representing a slight decline of 0.6% from the previous quarter.

Q&A Session

Both notebook and monitor IC sales declined in Q2, while TV IC sales outperformed guidance with a single-digit sequential increase driven by higher shipments to key customers after several subdued quarters. Sales of large driver IC accounted for 11.6% of total revenue for the quarter, compared to 11.6% last quarter and 16.3% a year ago. Revenue from the small and medium-sized display driver segment totaled $144.5 million, reflecting a sequential decline of 4.0%. However, Q2 automotive driver sales, including both traditional DDIC and TDDI, outperformed our guidance of mid-teens sequential decline, posting only a single-digit decrease quarter-over-quarter. The sequential decline reflected the combined impact of tariffs and the tapering effect of the Chinese automotive subsidy program.

Net automotive driver sales for the first half of 2025 still recorded a 3.2% year-over-year increase, indicating resilient underlying demand despite global softness in automotive sales. Our automotive business, comprising DDIC, TDDI, Tcon, and OLED IC sales, remains the largest revenue contributor in the second quarter, representing approximately 50% of total revenue. Meanwhile, Q2 smartphone IC sales outperformed our guidance of the mid-teens sequential decline, showing a slight increase from the prior quarter, mainly driven by the order from a leading customer. Our tablet driver sales increased as expected, supported by renewed demand from leading customers following several quarters of softer demand. The small and medium-sized display driver IC segment accounted for 67.3% of total sales for the quarter, compared to 70.0% in the previous quarter and 66.3% a year ago.

Q2 non-driver sales reached $45 million, a 14.7% increase from the previous quarter. The sequential increase was primarily attributable to the increased shipment of Tcon for automotive and monitor products. Himax continued to hold an undisputed leadership position with a dominant market share in automotive Tcon, particularly in solutions featuring local functionality. Our growing pipeline, now exceeding 200 design wins, is poised to transition into mass production over the next few years. Tcon business accounted for over 12% of total sales, with notable contributions from automotive Tcon. Non-driver products accounted for 21.1% of total revenues as compared to 18.4% in the previous quarter and 7.4% a year ago. Second quarter operating expenses were $48.9 million, an increase of 6.9% from the previous quarter and 3.3% from a year ago.

The appreciation of the NT dollar against the U.S. dollar in Q2 was the key factor behind the sequential increase. Similar factors drove the year-over-year increase, though it was partially offset by the decline in employee bonus compensation due to the decline in the annual bonus expenses for the amortized purchase of the previous year’s bonuses. Excluding the impact of NT dollar appreciation, second-quarter operating expenses would have remained flat year-over-year amid ongoing macroeconomic challenges. We remain vigilant in invoicing, budget, and expense control. Second quarter operating income was $18.1 million, representing an operating margin of 8.4% compared to 9.2% last quarter and 12.2% for the same period last year. Operating profit declined 8.6% sequentially, mainly due to higher operating expenses, partially offset by an increase in gross margin and gross profit.

Excluding the impact of NT dollar appreciation on Q2 expenses, operating income increased slightly compared to the previous quarter. Operating profit declined 38.1% year-over-year, primarily due to lower sales and reduced gross margin. Second quarter after-tax profit was $16.5 million or $0.95 per diluted ADS compared to $20.0 million or $0.14 per diluted ADS last year and down from $29.6 million or $0.59 in the same period last year. Turning to the balance sheet. We had $332.8 million of cash, cash equivalents, and other financial assets as of June 30, 2025. This compares to $253.8 million at the same time last year and $281 million a year ago. The sequential increase was mainly driven by the strong positive operating cash flow of $50.5 million in the second quarter.

Looking ahead to Q3, we anticipate a decline in cash, cash equivalents, and other financial assets primarily due to a payment of $64 million for the annual dividend to shareholders, which was made on July 11. In addition, subject to final Board decision, we will distribute a total of approximately $13.3 million for employee bonus awards at the end of the third quarter, which includes a $7.2 million for the immediately vested portion of this year’s award and $6.1 million for the vested award granted over the past 3 years. Our quarter-end inventory was $134.6 million, higher than the $129.9 million last quarter but lower than the $203.7 million a year ago. After 10 consecutive quarters of inventory decline from its peak during the industry-wide supply shortage, Q2 inventory has slightly increased, but is now still at a healthy level.

As economic uncertainty limits visibility across the ecosystem, we will continue to manage our inventory conservatively. Accounts receivable at the end of June 2025 were $219 million, a slight increase from the $217.5 million last quarter, but down from $242.4 million a year ago. DSO was 92 days at the quarter end as compared to 91 days last quarter and 99 days a year ago. Second quarter capital expenditure was $4.6 million versus $5.2 million last quarter and $4.6 million a year ago. Second quarter CapEx was mainly for R&D-related equipment for our IC design business and the construction in progress for the new preschool near our Thailand headquarters, built to employ children. As of June 30, 2025, Himax had 174.3 million ADS outstanding, a decline from last quarter.

And on a fully diluted basis, the total number of ADS outstanding for the second quarter was $174.5 million. Now turning to our third quarter 2025 guidance. We expect third quarter revenues to decrease 12% to 17% sequentially. Gross margin is expected to be around 30%, depending on product mix. The third quarter loss attributable to shareholders is estimated to be in the range of $0.20 to $0.40 per fully diluted ADS. As we have done historically, we will grant employees an annual bonus, including RSU and cash awards, on or around September 13 this year. Our third quarter guidance of a loss per diluted ADS has taken into account the effective 2025 annual bonus, which, subject to Board approval, is now assumed to be around $7.5 million, out of which $7.2 million was invested and expensed immediately on the grant date.

As a reminder, the total annual bonus amount and the immediately vested portion are our current best estimates only, and the actual amount could vary materially depending on, among other things, our Q4 profit and the final board decision for the total bonus amount and vesting. As is the case for previous years, we expect the annual bonus grant in 2025 to lead to higher third-quarter operating expenses compared to the other quarter of the year. In comparison, the annual bonuses for 2024 and 2023 were $12.5 million and $10.4 million, respectively, of which $11.2 million and $9.7 million vested immediately. In providing our Q3 financial guidance, the Q3 expenses related to employee bonuses are estimated to be $8.2 million, representing $0.04 per diluted ADS before tax, comprised of $7.2 million, the immediately vested portion of this bonus stated above, and $1.0 million, the amortized portion of the unvested bonuses from the previous year.

Employee bonus expense in each of the last 3 quarters was also around $0.8 million. I will now turn the call over to Jordan to discuss our Q3 2025 outlook. Jordan, the floor is yours.

Jordan Wu: Thank you, Karen. Uncertainty surrounding tariff policies persisted across the global economy throughout the third quarter and into July. However, starting in August, the U.S. began clarifying its tariff measures towards most of the countries, including major economies such as Japan and the EU. developments have helped reduce uncertainty in the global trade environment. That said, less than 24 hours ago, the U.S. government announced plans to impose tariffs of approximately 100% on semiconductor chips imported from companies that do not manufacture in the United States. As the details of the new tariff plan have yet to be released, we are unable to comment further regarding its potential impact at this time. We are closely monitoring the situation and will respond accordingly.

It is worth noting that tariffs have not had a significant direct impact on Himax’s business, as our IP products are not directly exported to the U.S. Instead, they are integrated into panels or modules by customers outside the United States, and they are sold globally, including in the U.S. market. Only a negligible portion, about 2% of Himax’s products, are shipped directly to the U.S. In the automotive sector, the U.S. recently reached separate agreements with the EU, Japan, and Korea. These tariff agreements among the world’s major automotive manufacturing and consumption regions help ease market uncertainty, and trade and shipments among these markets are expected to gradually normalize. Notwithstanding these early signs of clarity regarding automotive tariffs, given the timing of the announcements, which were made just days prior to this earnings call, we have not yet received any customer adjustments in demand for automotive ICs in response to the new tariffs.

The situation remains dynamic and subject to further observation. Overall, automotive market demand visibility remains low, with customers continuing to adopt a cautious stance by maintaining low inventory levels and delaying new product introductions. As a result, we are maintaining a conservative outlook for the third quarter and continuing our strategy of strict expense controls while actively reducing procurement costs and enhancing supply flexibility. At the same time, we are accelerating the geographic diversification of our foundry and back-end vendors to address customers’ diversified deployment needs stemming from geopolitical considerations. This strategy aims to strengthen our global manufacturing resilience and reduce risks associated with regional concentration.

In the automotive sector, we remain optimistic about our long-term business outlook, primarily driven by the continued upgrade of smart cockpits where displays serve as a key component, fueling market growth. With nearly 2 decades of dedicated experience in the automotive field, Himax offers the industry’s most advanced and comprehensive automotive display IC solutions, spanning LCD to OLED technologies. Himax holds the #1 global market share across all segments of automotive display ICs with an over lead over competitors. Looking ahead, we expect continued growth in automotive TDDI and Tcon technologies, both of which are relatively new and advanced display solutions for vehicles. To date, these technologies have been successfully designed into hundreds of projects worldwide, with approximately 1/3 already in mass production and the remainder expected to enter mass production within the next few years.

In the area of traditional automotive DDIC, although DDICs have gradually been replaced by TDDI panels with touch functionality, traditional DDICs remain essential for applications such as dashboards, SUVs, and rear and mirrors, which do not require touch integration. In addition, Himax has spent years cultivating its automotive OLED business in close collaboration with leading panel makers. The number of new project engagements is rising rapidly, and starting in 2027, automotive OLED-related growth momentum is expected to accelerate significantly, making it one of our key long-term revenue drivers. Despite limited visibility to the second half of the year, the recent clarification of tariff policies and continued low inventory levels at panel customers provide some positive signals.

We will remain prudent in navigating market dynamics by continuing to closely monitor customer demand. Throughout the ongoing macroeconomic uncertainty, we remain committed to expanding beyond display ICs into new business areas characterized by high growth potential, high added value, and high technological barriers, areas expected to drive our long-term growth. Himax has been deeply engaged in this field for 1 or 2 decades, establishing significant technical barriers and securing a robust portfolio of key patents. As all these efforts begin to bear fruit, they are expected to inject strong momentum into future operations. First, in the WiseEye AI domain, we continue to collaborate with several leading notebook brands such as Dell and Laser, achieving significant results.

We expect this growth to continue over the coming years by adding more leading notebook customers and introducing further AI features to the notebook. In addition, Himax has made both technological and market breakthroughs in additional battery-powered applications such as small balls, powered recognition, and smart home, jointly developing unprecedented and innovative AI applications with top-tier global customers. These applications are mostly battery-powered, showcasing WiseEye’s unique advantage in ultra-low power computing. Further, a recent major application addition is in smart glasses, where WiseEye has gained strong design traction due to the stringent power efficiency requirements of smart glasses. Looking ahead, the WiseEye business is entering the phase of revenue growth after years of customer and application development, becoming one of our key growth drivers.

In the field of co-package optics or CPO, Himax’s proprietary WLO technology plays a critical role. Together with our partner, we have achieved a significant breakthrough in silicon photonics technology, with the first-generation solution being validated by our anchor customers/partners. We are working towards the goal of entering mass production in 2026. Meanwhile, Himax and FOCI are collaborating with several heavyweight customers and partners to jointly develop future-generation high-speed optical transmission technologies to meet the explosive bandwidth demand of HPC and AI applications, while also helping to address the pain point of overheating associated with high-speed transmission. Turning to smart glasses. After years of warm consumer reception, smart glasses are getting extraordinary market attention of late and becoming a segment of strategic importance for Himax.

With the adoption of generative AI and large language models, AI and AI glasses are widely expected by the industry to become the next breakout market. Numerous world-class hyperscalers and specialized smart glasses developers from around the globe are actively investing in the development of new smart glasses, with China in particular leading the way in terms of the number of players. Himax stands out as one of the few companies in the industry to possess 3 critical enabling technologies for smart glasses, namely ultra-low power intelligent sensing, metro display, and nano optics, giving it a unique competitive advantage in this emerging field. In intelligent sensing, Himax’s WiseEye AI delivers all-day ultra-low power contextual awareness with average power consumption of just a few watts.

It significantly enhances the activity and perception of smart glasses while preserving battery life and data privacy. The technology has been widely adopted and successfully integrated into the next-generation smart glasses of multiple customers. In micro display, Himax’s latest microdisplay features 350,000 nits of brightness, exceptional optical power efficiency, and outstanding image quality, all in an extremely compact and lightweight form factor. It is considered the most commercially viable solution closest to the ideal microdisplay for seeing through AI glasses. Since its debut at Display Week 2025, the module has drawn strong attention and is soon entering the stages with multiple customers. In the field of nano optics, Himax offers proprietary WLO technology for advanced nano optical foundry service to selected customers, developing solutions that can significantly enhance both transmission and display efficiency of AI glasses.

Looking ahead, we expect revenues from AR and AI glasses-related applications to grow substantially over the next few years, becoming a key driver of the company’s mid- to long-term growth. Lastly and before I get into comments on the specific sectors, regarding foreign exchange, while Himax is a Taiwan-based company, our financial statements are U.S. dollar-dominated. Since both our revenue and cost of goods sold are in U.S. dollars, this provides a natural hedge for Himax’s trade activities. Additionally, a portion of our operating expenses is also in U.S. dollars, offering further natural hedging. The non-USD-denominated operating expenses primarily include employee salaries and utility costs. Other non-U.S. dollar expenses are mainly OpEx taxes.

Overall, the impact of currency fluctuations on Himax’s financials is relatively limited. Based on internal estimates at around current revenue levels, a 1% appreciation of the NT dollar against the U.S. dollar will reduce operating margin by approximately 0.15%. Himax’s third quarter financial guidance is calculated based on TWD 29.4 against the U.S. dollar, which is equivalent to the daily average of the quarter after the day before the earnings call. With that, I will now begin with an update on the large panel driver IC business. In Q3, large display driver IC sales are expected to decline by double digits sequentially. Amid the volatile macro environment, most panel customers remain cautious, adhering to a make-to-order model and maintaining lean inventories in response to a murky demand outlook.

The absence of traditional seasonal shopping momentum, coupled with customers pulling forward purchases in previous quarters, is expected to drive declines across all 3 product lines in the large panel driver IC segment for Q3. In the notebook sector, we continue to focus on the growing trend among premium models to adopt OLED displays and touch features. This shift is driven in part by the rise of AI PCs and increasing demand for more interactive technologies that enhance user experience, boost productivity, and support creative applications. Himax is well-positioned to capitalize on this trend by offering a comprehensive range of ICs for both LCD and OLED notebooks, including DDIC, Tcon, touch controllers, and TDDI. In addition, we are expanding our high-speed interface product portfolio to support faster data transmission, low latency, and improve power efficiency features that are critical for next-generation displays.

Turning to the small and medium-sized display driver IC business. In Q3, small and medium-sized display driver IC business is expected to decline by single digits from the last quarter. Q3 automotive driver IC sales, including TDDI and traditional DDIC, are set to decline slightly quarter-over-quarter as customers adopt a cautious stance, with delayed orders amid ongoing tariff negotiations. Despite near-term headwinds, global adoption of automotive TDDI continues to expand, fueled by growing demand for intuitive, interactive, and cost-effective touch features in modern vehicles. Himax remains the leader in this market with cumulative shipments already exceeding 100 million units, representing a market share well above 50%, far outpacing most of our competitors.

To date, we have secured around 5 design-in projects across a wide range of global automotive brands and Tier 1s, spanning entry- level to high-end vehicle models. Supported by a continuous flow of new project pipelines and widespread design wins, we are well-positioned to maintain our growth momentum and reinforce our leadership in the market. While traditional automotive DDIC sales declined in Q3 due to partial replacement by TDDI, the transition remains gradual as many automotive displays, such as dashboard, SUVs, and rear and side view mirrors, do not require touch functionality and typically have long product life cycles. Himax holds a solid 40% market share in the traditional DDIC and remains the go-to supplier for both legacy and next-generation automotive display applications.

Himax also continues to lead in automotive display IC innovation by pioneering solutions across a wide range of panel types, addressing diverse design needs and cost considerations. For ultra-large displays, we offer LDI, where we led the industry by introducing the technology and commencing its production in Q3 2023. Additional LDDI projects with multiple leading global brands are on track for mass production in the third quarter, with more programs expected to follow as we move into 2026. For smaller displays with tight form factor and budget requirements, we provide single-chip designs that combine TDDI and novel Tcon. This enables advanced local dimming in small-sized displays, reduces overall system costs, and improves power efficiency.

Meanwhile, Himax is recognized for its dominance in lower TC technology, which I will elaborate on in a few minutes. We continue to lead the global automotive display market with a 40% share in DDIC, over 50% in TDDI, and even higher market share in lower Tcon. Moving to smartphone and tablet IC sales. We expect revenues for both segments to decline quarter-over-quarter as customers pull forward purchases in prior quarters. Next, an update on our OLED business. In the automotive OLED market, we have established strategic partnerships with leading panel makers across Korea, China, and Japan. As OLED technology gains broader adoption for premium vehicles, Himax is well-positioned to become the partner of choice, leveraging our nearly 2 decades of experience and strong foothold in the automotive display market.

Capitalizing on our first-mover advantage, we offer a comprehensive suite of solutions, including DDIC, Tcon, and on-cell touch controllers. Our automotive OLED driver and Tcon solutions began production for EVs of leading car makers a few years ago. We now also offer standard ICs ready for broader deployment. In parallel, we are collaborating with leading panel makers of custom ASIC development. In addition, our advanced OLED on-cell touch control technology features an industry-leading signal-to-noise ratio, ensuring reliable performance even in challenging conditions such as glass or [WE-I ASIC chip]. The OLED on-cell touch ICs entered mass production in 2024 and are being increasingly adopted by major global automotive brands for the upcoming car models.

Looking ahead, we expect OLED panel adoption in automotive displays to accelerate starting in 2027. Himax is well-positioned to be a key beneficiary, unlocking a new growth engine that further strengthens our leadership in the automotive display market. We have also expanded our comprehensive OLED portfolio into the tablet and notebook markets, covering DDIC, Tcon, and touch controllers through partnerships with leading OLED panel makers in Korea and China. Several new projects are slated to enter mass production with top-tier brands later this year. Meanwhile, we are developing new technologies for value-added features such as active stylus, ultra, based on design and gaming models, to further differentiate our products and reinforce our competitive edge.

In the smartphone OLED market, we are making solid progress in our collaborations with customers in Korea and China, with mass production on track starting at the end of this year. I would like to now turn to our non-driver IC business update, where we expect the third quarter revenue to decline double digit sequentially. First, for an update on our Tcon business. We anticipate Q3 Tcon sales to decrease by double digits sequentially, but increase by single digits year-over-year. The CO decline is primarily a result of customers putting forward inventory purchases of Tcon for monitor, notebook, and TV products during the prior quarters, against the backdrop of Chinese government subsidies boosting domestic consumption. In automotive, our Q3 sales are set to increase by single digits sequentially, fueled by a strong pipeline of over 200 design win projects gradually entering mass production.

We believe our automotive Tcon business is well-positioned for sustained growth in the years ahead. We continue to lead the industry in the innovation of automotive Tcon technology. Our new generation low Tcon offers advanced features such as edge and high dynamic range, ideal for customers looking to upgrade their displays for better panel performance. Switching gears to the WiseEye ultra-low power AI solution. The cutting-edge endpoint AI integration feature industry-leading ultralow power AI processor, always image sensor, and CM-based AI algorithm at its core. Amid the rapidly evolving AI landscape, WiseEye AI stands out by delivering on-device AI inferencing with industry-leading ultra- low power, nearly a few milliwatts, alongside a contact form factor and industrial-grade security, enabling AI functionality in battery- powered endpoint devices.

With always-intelligent low-power perceptual input, WiseEye serves as an ideal front end for [indiscernible] supporting multimodal AI that goes beyond vision, language, audio, and intent to include rich contextual awareness such as motion, proximity, and behavior for smarter, more responsive user experiences. Wi-Fi adoption is accelerating across dilications, including notebooks, tablets, surveillance systems, access control, smart home and more recently and more recently, smart glasses and many others. [Indiscernible] We are pleased to report that it has also adopted Wise for its AI PC. Wise is now being integrated by other leading notebook vendors, with some entering production later this year and expanding further into 2026. WiseEye’s advanced local inferencing capability goes beyond human presence detection, supporting a broad set of intelligent features, including proximity detection and pressure, and presence awareness, alert posture reminders, and automatic cursor to the display the user is viewing.

In the surveillance domain, WiseEye AI enhances security systems by combining 2 key capabilities, namely accurate human option distinction and event-driven activation. This significantly reduces false triggers, conserving power and minimizing system overhead. Outperforming widely used conventional PR sensors that often misidentify motion and unnecessarily activate the high-power-consuming processor and/or image sensor. In addition to the China market where shipments to leading smart door lock vendors are already underway, we are now partnering with leading door lock vendors worldwide to introduce advanced AI features such as biometric access, par recognition, and anti-pinch protection with several designs slated for mass production starting in 2026.

Recently, we achieved another competing demonstration of our ultra-low-power AI motion sensing through our collaboration with [indiscernible], marked by the launch of the AI built over 6 axis gyroscope, Bond AI empowers wearables with advanced on-demand capabilities such as motion analysis, posture recognition and behavior interpretation, all delivered with low latency, exceptional energy efficiency and a privacy-first design. With WiseEye AI, the Bond AI platform can also interface with ALS, further expanding its ability to perceive, understand, and interact with complex real-world scenarios. This enables a wide range of real-world applications, including smart health care, sports, education, and interactive learning. Next, for an upgrade on our WiseEye module business, which integrates Himax’s ultra-low-power image sensor AI processor and pretrained no-code/low-code AI algorithm, enabling easy deployment across a broad spectrum of applications.

Himax’s biometric authentication portfolio complies with Europe’s General Data Protection Regulation or GDPR, one of the world’s strictest data privacy laws, ensuring strong privacy protection and enabling adoption in highly regulated markets. Our panel module has attracted strong interest across multiple industries, rapidly securing design wins in areas such as smart access, workforce management, smart locks, and more, with some projects scheduled to enter mass production in 2026. To address the growing demand for more flexible access control, we have upgraded the WiFi panel suite with multimodal authentication capabilities, combining panel and facial recognition to enable multilayer biometric verification, delivering stronger security and greater user convenience.

In the field of AI sensing for AR and AI glasses, we are excited to see WiseEye AI’s growing adoption and active engineering engagements across major tech giants, traditional OEMs, brands, and start-ups. Smart glasses makers are leveraging WiseEye to enable instant responsiveness for a wide range of AI applications while ensuring extended battery life. More specifically, WiseEye empowers both outward and inward vision sensing capabilities. For out vision sensing enables environmental awareness and real-time analysis, such as object recognition, navigation assistance, and environmental mapping, significantly enhancing AI interactivity for consuming just a few million watts of power concurrently for in vision sensing. WiseEye AI movements, gas direction, people, and to support intuitive user interactions.

Multiple projects are underway for customers’ next-generation AI and AI glasses, further validating WiseEye as the preferred option for a powerful AI solution for emerging wearable education requiring real-time user environment interaction. Moving on to our latest advancements in LCOS micro display technology. Following the debut of our proprietary dual-edge LCOS microdisplay at Display Week this May. Customers across the board are eagerly anticipating samples of our newly introduced LCOS solution targeted for release in September for their new C AR glasses projects. This industry-leading solution integrates both the illumination optics and LCOS panel into an exceptionally compact form factor as small as 0.09 cc and weighs just 0.2 grams, while achieving up to 350,000 nits of brightness and wide movement output at just 250minwatt maximum power consumption.

The Luminous breakthrough ensures excellent high-level visibility even in bright conditions, while the offshore compact form factor makes sleek everyday AI glasses possible. The collaborations with leading global tech companies and specialized smart glasses vendors continue to progress steadily. We’ll provide more updates as they come about. That concludes my report for this quarter. Thank you for your interest in Himax. We appreciate you joining today’s call and are now ready to take questions.

Operator: [Operator Instructions]

Jordan Wu: I actually have a couple of questions related to our CPO status. The questions are about some updates from last quarter, our mass production timetable, next-generation progress, sales contribution, et cetera. So I think I will combine the questions and give the provided answer together. So in short, the project is on track. And I mean, we really don’t have a whole lot of progress or updates. So, together with our partner, we are focused on getting the first-generation product validated. So 2025, this year will be a year for engineering validation with only sample shipments for us. So some of the shipments certainly, in terms of revenue contribution, will be rather limited. And in all likelihood, mass production will commence next year.

But at this point, we will not comment on exactly when in 2026. So, as far as the new generation is concerned, we are actually developing more than one generation of future products. I mean, obviously, I cannot give details of the future generation design. What I can say is that these products, when successful, will represent much higher revenue for us on a per unit basis or per FAU basis because our new design will cover a much wider scope of optics inside the FAU, while at the same time, enable higher transmission bandwidth and lower the overall module cost for our customers. I’ve actually commented on the revenue potential in my last 2 earnings calls. So I think I will just quickly go through that again. So again, next year, 2026, is likely to be the first year of mass production.

But it’s still too early to give an early indication for the year because, as I just said, exactly when MP will commence is yet to be determined by our customers. I said in the Q&A of last earnings call that our annualized CPO revenue could reach over $100 million in the so-called early stage of mass production. And I’m still holding the same view. So by early stage, I’m thinking the early stage of MP when only maybe most of the AI switches in the data center are equipped with CPO. And actually, as the technology is more proven, CPO will be adopted by more end customers and penetrate further to also cover XPUs for AI data centers. Now, if you look further ahead, I believe automotive and humanoid robots are 2 likely new major markets where advanced high- bandwidth AI is also needed.

And because our optics is a critical element of CPO, we are seeing this business as a major game changer for Himax. So it’s something we will certainly commit to for many, many years. So, regarding the question and when this will start ramping up, to me, this is not really a question of whether or even when it will happen, but rather how fast and how much the CPO technology will penetrate. And we believe with all the obvious benefits like raising transmission bandwidth and substantially reducing power consumption of data transmission, and all at pretty low cost compared to those complex AI systems, the CPO technology has the potential to ramp quickly with high market penetration. But ultimately, this is a decision again to be made by our end customers.

So what we can do is get ourselves prepared for any ramping plan, and equally important, aggressively push the boundaries of the technology. And I guess lastly, I think it’s important to point out that the progress of collaboration with our customers is not affected and not deterred by the prevailing macro uncertainty or the tariff situation. So our customer/partner are as determined and focused as ever to push this odd forward as planned. So again, that’s my answer to a few questions related to the CPO. There’s actually another question about the number of planned CPO product generations and whether they are currently in preparation for validation. The validation is now being focused on the current generation only with the next generation going through design collaboration with the design stage.

And the number of CPO product generations, I’m not sure exactly what this means. Actually, I can tell you there’s a longer-term term rather fundamental and important advancement of CPO technology that we are working on, which, if successful, could cover a few generations of products. It’s if it’s successful, it’s going to be a major breakthrough for what we are doing right now. But I mean, obviously, I’m not allowed to disclose too much. So I guess there’s this current generation, which is, I think, validation, yield improvement, and so at this stage, we are geared up for mass production next year. And there’s the next generation with specs coming from the customers’ close collaboration with us. And for future generations, further ahead technology developments that could fundamentally improve the cost and efficiency of CPO, and that can cover several generations to come, if successful.

Why did Himax lose money in Q3? Based on our guidance, we are projecting to lose $0.02 to $0.04 a share in Q3. And as I just mentioned in my prepared remarks, that is because of our pretty peculiar way of expensing our employee bonuses. And we have been doing that for almost 20 years ago, ever since we got listed in 2026. And so I’m sure that those analysts or investors following us are already familiar with this. So in short, what happens is our employee bonus or expenses every year will reach a peak in Q3 and with much smaller amount during Q1, 2 and 4, and it has been a pattern for 20 years also because of our approach of issuing employee bonuses, whereby we basically announced employee bonus every year at the end of September or 30th of September.

And we are just strictly following accounting rules. And I wish, based on our accounting practice, we could more our expenses evenly distributed across the 4 seasons, but we are not allowed to. So if you take away the employee bonus, actually, we can actually turn a small profit during Q3, and we are projecting positive cash flow during Q3. But that’s just the way we do our accounting. But I mean, naturally, we are doing well in Q3 overall. As I just mentioned, the automotive, nonautomotive all sectors, limited visibility and tariffs; I’m not going to repeat that, but there’s a particular reason for our Q3 projected loss. I guess there is no further question at this on my list. So as a final note, Karen, our Head of IR, will maintain investor marketing activities and continue to attend investor conferences, and will announce the details as they come about.

Thank you.