Himax Technologies, Inc. (NASDAQ:HIMX) Q3 2025 Earnings Call Transcript

Himax Technologies, Inc. (NASDAQ:HIMX) Q3 2025 Earnings Call Transcript November 6, 2025

Himax Technologies, Inc. misses on earnings expectations. Reported EPS is $0.01 EPS, expectations were $0.08.

Operator: Hello, ladies and gentlemen. Welcome to Himax Technologies, Incorporation Third 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. Tiao, please go ahead.

Karen Tiao: Welcome, everyone, to the Himax Third 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 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 statements regarding expected future financial results and industry growth and 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 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 independent auditors, to which we subject our annual consolidated financial statements and may vary materially from audited consolidated financial information for the same period.

The company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. On today€™s call, I will first review the Himax consolidated financial performance for the third quarter 2025, followed by our fourth quarter outlook. Jordan will then give an update on the status of our business, 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 quarter, U.S. tariff measures continue to see [indiscernible] global trade dynamics, adding to the macroeconomic and [indiscernible] uncertainty. [indiscernible] we are pleased to report that our third quarter revenue and profit both significantly exceeded the guidance range announced on August 7, 2025, while gross margin came in within guidance.

Third quarter revenue registered $199.2 million, representing a sequential decline of 7.3%, which significantly outperformed our guidance range of 12.0% to 7.0% decline, primarily driven by better-than-expected sales from automotive IC and Tcon product lines. Our gross margin was 30.2%, in line with our guidance of around 30%. Q3 profit per diluted ADS was $0.06, substantially exceeding the guidance range of a loss of $0.02 to $0.04 attributable to the stronger-than-guided revenues. Revenues from large display drivers came in at $9.0 million, representing a decline of 23.6% on the previous quarters. All three product lines within the large panel driver IC segment declined primarily due to the absence of the traditional seasonal shopping momentum amid a volatile macroeconomic environment as well as the customers pulling forward purchases in prior quarters.

Sales of large panel driver IC accounted for 9.5% of total revenues for the quarter compared to 11.6% last quarter and 13.8% a year ago. Revenue from the small- and medium-sized display driver segment totaled $141.0 million, reflecting a slight decline of 2.4%. Q3 automotive driver sales, including both the traditional DDIC and TDDI increased single digit quarter-over-quarter, outperforming our guidance of a slight sequential decline, indicating resilient underlying demand despite global softness in automotive sales. The sequential growth was mainly driven by replenishment in both TDDI and DDIC products with customers adhering to a make-to-order model and keeping inventory lean in view of an uncertain demand outlook. Our automotive business comprising DDIC, TDDI, Tcon and OLED IC sales remain the largest revenue contributor in the third quarter, representing over 15% of the total revenue.

Meanwhile, revenue for both smartphone and tablet IC segments declined quarter-over-quarter as customers pull forward purchases in prior quarters. The small and medium-sized display driver IC segment accounted for 17.8% of total sales for the quarter compared to 67.3% in the previous quarter and 69.9% a year ago. Q3 non-driver sales reached $39.2 million, a 13.7% decrease from the previous quarter but outperforming our guidance range, primarily attributable to increased shipment of Tcon for automotive application. Himax continued to hold an undisputed leadership position with a dominant market share in automotive Tcon. Tcon business accounted for around 12% of total sales with notable contributions from automotive Tcon. Non-driver products accounted for 19.7% of total sales as compared to 21.1% in the previous quarter and 16.3% a year ago.

Third quarter operating expenses were $60.7 million, an increase of 24.2% from previous quarter and roughly flat compared to the same period last year. The sequential annual bonus compensation, which we award employees at the end of September each year, typically resulting in much higher Q3 employee compensation expense compared to our quarters of the year. Increased tape-out expenses, salary expenses as well as the appreciation of NT dollar against the U.S. dollar in Q3 were also factors behind the sequential increase. Our annual bonus compensation grant for 2025 was $7.7 million, slightly higher than the guidance of $7.5 million as the bonus amount determined based on the expected full year profit was revised upward following a much improved Q3 financial performance.

Of the $7.7 million, $7.5 million was immediately invested in expenses in the third quarter. Including the portion of the awards granted in prior year, the total bonus expenses for Q3 2025 amounts to $8.1 million, significantly lower than $13.9 million recorded in Q3 2024. For reference, the annual bonuses granted for 2024 and 2023 were $12.5 million and $10.4 million respectively, of which $11.2 million and $9.7 million were vested and expensed immediately. Amid ongoing macroeconomic challenges, we continue to exercise strict budget and expense controls. Third quarter operating loss was $0.6 million, representing a negative operating margin of 0.3%, compared to 8.4% in the previous quarter and 2.6% for the same period last year. The sequential decline was primarily attributable to higher employee bonus which, as stated earlier was $8.1 million, compared to $0.8 million last quarter, coupled with lower revenues and gross margin.

The year-over-year decrease was mainly due to the reduced sales. Q3 after-tax profit was $1.1 million, or $0.006 per diluted ADS, compared to $16.5 million, or $0.095 per diluted ADS last quarter, and down from $13.0 million, or $0.074 in the same period last year. Now, turning to the balance sheet, we had $278.2 million of cash, cash equivalents and other financial assets as of September 30, 2025. This compares to $206.5 million at the same time last year and $332.8 million a quarter ago. The sequential decline in cash balance mainly reflected the $64.5 million dividend and $13.1 million employee bonus payout. Q3 operating cash inflow was $6.7 million, compared to an inflow of $60.5 million in the prior quarter. The sequential decrease mainly reflected higher accounts payable payments in Q3 for inventory procured in prior quarters to support customer demand, along with employee bonus payment mentioned above.

The employee bonus paid out this year included $7.3 million for the immediately vested portion of this year€™s award and $5.8 million for vested awards granted over the past three years. We had $30.0 million of long-term unsecured loans at the end of Q3, of which $6.0 million was the current portion. Our quarter end inventories were $137.4 million, a slight increase from $134.6 million last quarter and lower than $192.5 million a year ago. After several quarters of inventory decline from its peak during the industry-wide supply shortage, Q3 inventory slightly increased but remained at a healthy level. As macroeconomic uncertainty limits visibility across the ecosystem, we will continue to manage our inventory conservatively. Accounts receivable at the end of September 2025 was $200.7 million, decreased from $219.0 million last quarter and down from $224.6 million a year ago.

DSO was 87 days at the quarter end, as compared to 92 days last quarter and a year ago. Third quarter capital expenditures were $6.3 million, versus $4.6 million last quarter and $2.6 million a year ago. Third quarter capex was mainly for R&D related equipment for IC design business and the construction in progress for the new preschool near Himax€™s headquarters built for employees€™ children. As of September 30, 2025, Himax had 174.5 million ADS outstanding, little changed from last quarter. On a fully diluted basis, the total number of ADS outstanding for the third quarter was 174.4 million. Now turning to our fourth quarter 2025 guidance. We expect Q4 revenues to be flat sequentially. Gross margin is expected to be flat to slightly up depending on product mix.

Q4 profit attributable to shareholders is estimated to be in the range of $0.02 to $0.04 per fully diluted ADS. I will now turn the call over to Jordan to discuss our Q4 2025 outlook. Jordan, the floor is yours.

Jordan Wu: Thank you, Karen. The U.S.-China tariff negotiations recently reached a preliminary framework, sending a positive signal to the market. Yet most panel customers continue to adopt a make-to-order model and maintain low inventory levels. In the automotive display IC business, Himax’s most important market accounting for over 50% of total revenues, demand visibility remains low as customers continue to act conservatively and sustain lean inventory levels. Despite the limited short-term visibility in the automotive market, remains optimistic about our automotive business outlook for the next few years, backed by our leading new technology offerings and comprehensive customer coverage. Meanwhile, we continue to focus on the expansion into emerging areas beyond display ICs, including ultralow power AI, CPO, and smart glasses, all novel applications characterized by high growth potential, high added value, and high technological barriers that are well-positioned to become new growth drivers for Himax soon.

Before I [ leverage ] on those [ new ] business areas let me touch base on the Automotive IC business. Himax has been deeply engaged in the automotive display market for nearly two decades, offering a comprehensive range of display IC technologies spanning from the LCD to OLED. Amid intense industry competition, Himax holds a solid leadership position with #1 global market share across all segments of automotive display ICs and an overwhelming lead over competitors. As smart interiors advance, demand for automotive displays continues to grow, shifting toward larger, higher resolution and more innovative displays, including the adoption of OLED displays for high-end vehicles. Himax is well-positioned to benefit from this trend. Looking ahead, we expect further growth in automotive TDDI and Tcon technologies, driven by continued adoption from global panel makers, Tier 1 suppliers, and automakers.

Both TDDI and Tcon are advanced display solutions for vehicles and have already been successfully designed into hundreds of projects worldwide. Meanwhile, in the traditional DDIC segment, shipments remain relatively stable due to long product life cycles and the nature of many applications such as dashboards, head-up displays, and rear- and side-view mirrors that do not require touch functionality, thereby continuing to generate long-term and stable DDIC revenues for Himax. In addition, Himax has been deeply engaged in automotive OLED technology development for many years. With a continuously expanding product portfolio and an increasing number of leading global automakers accelerating adoption of OLED technology in new vehicle models, we expect OLED display adoption in the automotive sector to grow rapidly starting in 2027.

Despite lingering economic uncertainty, Himax continues to actively expand its business beyond display ICs, focusing on ultralow power AI, CPO, and smart glasses. Through years of dedicated investment and R&D, Himax has established a solid technological foundation and a strong patent portfolio in these areas, while closely collaborating with partners to drive products toward mass production and real-world applications. As these emerging businesses gradually materialize, they are poised to become key growth engines for Himax, reduce our reliance on the display IC market and further enhance both profitability and long-term competitiveness. First, on the WiseEye AI domain; WiseEye enables battery-powered endpoint devices with real-time analysis, precise recognition, and environmental awareness at ultralow power consumption of merely a few milliwatts.

Leveraging these core strengths, WiseEye has been successfully adopted by multiple leading global notebook brands with ongoing collaborations with customers to integrate more AI features into next-generation laptops. WiseEye has also been widely deployed across various domains such as smart door locks, palm vein authentication, and smart home appliances, partnering with top-tier global customers to co-develop a range of innovative applications. Our WiseEye module business features a simple design and ease of integration, making it highly suitable for diverse AIoT applications. It has already been adopted in applications such as smart parking systems, access control, palm vein authentication, smart offices, and smart home, with the number of design-in projects fast expanding.

Further, a recent major application addition is in smart glasses, a new product category characterized by extremely demanding low power. WiseEye enables real-time AI functionality at industry-leading ultralow power consumption while supporting always-on sensing for surroundings and event-based eye-tracking to deliver a natural and intuitive human€“machine interaction. It has been adopted by numerous major tech giants, traditional ODMs, brands, and startups to integrate into their new smart glasses projects. Looking ahead, the WiseEye business is entering a phase of rapid growth, becoming one of the [indiscernible] key growth engines. In the field of Co-Packaged Optics or CPO, Himax leverages its proprietary WLO advanced nano-imprinting technology.

Together with our partner, FOCI, we have achieved significant breakthroughs in silicon photonics technology, with the first-generation solution being validated by customers and partners [indiscernible] towards mass production readiness in 2026. In parallel, joint development efforts with leading customers and partners are underway, focusing on future-generation high-speed optical transmission technologies to meet the explosive bandwidth demands of HPC and AI applications, while addressing the critical challenge of overheating in high-speed transmission. Himax expects CPO to become a major revenue and profit contributor in the years ahead. Last but not least let me touch base on the status of our Smart Glasses businesses. Driven by generative AI and Large Language Models, the smart glasses market is experiencing a resurgence and is seen as the next high-growth, high-volume market opportunity.

Smart glasses has been one of Himax’s long-term strategic focus areas where we are among the few in the industry that possess three critical enabling technologies for smart glasses, namely ultralow power intelligent image sensing, micro-display, and nano-optics, giving Himax a unique opportunity to take advantage of the potentially explosive growth of smart glasses. In intelligent sensing, Himax’s WiseEye AI delivers always-on, ultralow power contextual awareness with average power consumption of just a few milliwatts. It significantly enhances the interactivity and perception of smart glasses while preserving battery life of the smart glasses device. In micro-display, Himax’s latest Front-lit LCoS micro-display specifically tailored for AR glasses has attracted strong market attention since its debut.

It achieves an optimal combination of form factor, weight, power consumption, and cost, while delivering high brightness and high color saturation in full-color display performance, all key attributes for AR glasses. With over a decade of mass production experience with leading tech names and a proven record of reliable delivery, Himax’s new LCoS product, now in sampling stage, has attracted the attention of numerous AR glasses players worldwide. In the field of nano-optics, Himax offers proprietary WLO technology for advanced nano-optical foundry service to selected customers to develop waveguide solutions which, when bundled with micro-display, forms the display system required of AR glasses. Looking ahead, we expect revenues from AR and AI glasses related applications to grow substantially over the next few years.

With that I will now [indiscernible] with an update on the Large [ Panel ] Driver IC Businesses LDDIC. In Q4, large display driver IC sales are expected to increase single-digit sequentially, driven by new notebook TDDI projects entering mass production, along with customers’ restocking of monitor IC products following several subdued quarters. Despite a challenging market environment, we continue to advance our technology roadmap for next-generation displays to achieve faster data transmission, lower latency, improved power efficiency, and high-speed interface for next generation premium and gaming displays. In the Notebook sector, we continue to focus on the growing adoption of OLED displays and advanced touch features in premium models, driven by the rise of AI PCs and demand for more interactive, productivity-enhancing experiences.

Himax is well-positioned to capitalize on opportunities with a comprehensive range of ICs for both LCD and OLED notebooks, including DDIC, Tcon, touch controllers, and TDDI. Multiple projects for OLED displays, as well as gaming monitors and notebooks, are currently underway in collaboration with leading panel makers in Korea and China. Turning to the Small and Medium-sized Display Driver IC business. In Q4 small and medium-sized display driver IC business is expected to slightly decline from last quarter. However, Q4 automotive driver IC sales, including TDDI and traditional DDIC, are set to increase single digit quarter-over-quarter, largely driven by the continued adoption of TDDI technology among major customers across all continents. Despite the challenging macro environment, our automotive driver IC sales for the full year 2025 are projected to grow single-digit year-over-year, with total volume projected to outgrow the global automotive shipment.

Himax remains the leader in this market, with a market share well above 50%, far outpacing those of competitors. Traditional automotive DDIC demand remains solid despite partial replacement by TDDI. The transition continues to be gradual, as many automotive displays, such as dashboards, HUDs, and rear- and side-view mirrors, do not require touch functionality and typically have long product lifecycles. Himax holds a solid 40% market share in 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 while addressing diverse design needs and cost considerations. For example, in ultra-large touch displays, we led the industry by introducing LTDI solution which began mass production in Q3 2023.

LTDI has been gaining traction, driven by increasing popularity of larger in-vehicle displays that demand higher performance, improved signal integrity, and simplified system design. Additional LTDI projects with multiple leading global brands are on track to enter mass production as move into 2026. For smaller displays with form factor and budget constraints, we provide single-chip designs that combine TDDI and local dimming Tcon. This enables advanced local dimming in small-size displays, reduces overall system cost, and improves power efficiency, making it an attractive choice for customers. For high end displays, during the recent SID Vehicle Displays and Interfaces Symposium, one of the industry’s leading events for automotive display and HMI technologies, Himax showcased the industry€™s first OLED touch IC that supports both tactile knobs and capacitive touch keys, enabling flexible design options and delivering a safer, more intuitive control experience for OLED automotive displays.

Himax continues to advance interactive display technologies that enhance driver safety and cabin ergonomics. Looking ahead, OLED panel adoption in automotive displays is expected to accelerate starting in 2027. This presents an attractive opportunity to further solidify our leadership in the automotive display market where we already has a dominant market share position across DDIC, TDDI, and local dimming Tcon for LCD displays. We provide ASIC OLED driver and Tcon solutions that entered mass production a few years back, and now we also provide standard ICs ready for broader deployment. In parallel, we are collaborating with major panel makers on new custom ASIC developments to address diverse customer requirements. Additionally, our advanced OLED on-cell touch control technology delivers an industry-leading signal-to-noise ratio, ensuring reliable performance even under challenging conditions such as glove or wet-finger operation.

These OLED on-cell touch ICs entered mass production in 2024 and are being increasingly adopted by major global automotive brands for their upcoming car models. As the industry transitions to next-generation OLED display for high-end vehicles, Himax is uniquely positioned to capture the accelerating adoption of OLED in future automotive displays, replicating our success in the LCD by leveraging nearly two decades of automotive display expertise, strategic partnerships established with leading panel makers across China, Korea, and Japan, and a proven record in mass production and product quality that adheres to the world’s most stringent global standards for quality, reliability, and safety. Moving to smartphone and tablet IC sales for LCD panel, we expects revenues for both segments to decline quarter-over-quarter, as customers pulled forward purchases in prior quarters.

However, in the smartphone OLED market, we are making solid progress in collaborations with customers in Korea and China, with mass production set to ramp in Q4 this year and volume to increase further in the following quarters. Meanwhile, for OLED tablets, several new projects with top-tier brands are expected to enter mass production heading into 2026. In parallel, we are developing new technologies that enable value-added features such as active stylus, ultra-slim bezel designs, and higher frame rate to further differentiate our products and reinforce its competitive edge. I would like to now turn to our Non-Driver IC business update [indiscernible] we expect Q4 revenues to increase single digit sequentially. First for an update on our Tcon business.

We anticipate Q4 Tcon sales to be flat sequentially. However, Q4 automotive Tcon sales are well-positioned to grow single digit sequentially, fueled by a strong pipeline of more than 200 design-win projects gradually entering mass production. Many of these projects feature local dimming functionality, an area where Himax maintains a dominant market position. Our full year 2025 automotive Tcon sales are set to grow by approximately 50% year-over-year, laying a solid foundation for sustained growth as we move into 2026. In contrast, Tcon for monitor, notebook and TV products are expected to decline sequentially, primarily a result of customers pulling forward inventory purchases early this year. We continue to lead in automotive Tcon innovation.

Our new generation local dimming Tcons offer advanced features such as edge sharpness and high dynamic range, ideal for customers looking to upgrade their displays for better panel performance. Meanwhile, head-up displays are rapidly emerging, evolving beyond simple text and symbols to deliver high-brightness, high-contrast, AR-enhanced visuals within automotive displays, fueling demand for advanced Tcon solutions. To address this trend, we launched an integrated Tcon that features the industry’s first full-area selectable local de-warping function, combined with Himax’s market-leading local dimming and on-screen display technologies. The newly introduced multifunctional Tcon offers industry-first full-area selectable local de-warping capability, a major advancement over existing solutions that typically offer only full screen or limited split-screen de-warping.

Built on Himax’s dominant local dimming technology, the new de-warping Tcon solution continues to deliver exceptional contrast performance and effectively eliminates the undesired postcard effect commonly seen in HUDs, caused by backlight leakage typical of conventional TFT-LCD panels. Our industry-leading OSD function is also integrated within the new Tcon, allowing critical safety information to remain visible on the display even when the main system is shut down, thereby enhancing overall driver safety. The new Tcon solution supports a broad range of HUD architectures, including Windshield HUD, Augmented Reality HUD, and Panoramic HUD systems, [Audio Gap] design and cost requirements. Several customer projects are already underway, reflecting strong market recognition of our advanced HUD Tcon technology.

Switching gears to the WiseEye Ultralow Power AI Sensing Solution, a cutting-edge endpoint Ultralow Power AI processor, always-on CMOS image sensor, and CNN-based AI algorithm at its core. As AI continues to advance at an unprecedented pace, WiseEye is uniquely positioned with context-aware, on-device AI inferencing that delivers industry-leading power efficiency of just a few milliwatts with a compact form factor while fortified by industrial-grade security. This combination enables advanced AI capabilities in endpoint devices that were once constrained by power and size limitations, driving expanding adoption across a wide range of applications, including notebooks, tablets, surveillance systems, access control devices, smart home solutions, and, more recently, AI and AR glasses.

This growing momentum highlights WiseEye’s role as a trusted on-device AI sensing enabler, powering smarter and more power-efficient solutions across everyday devices and AIoT applications. In notebooks, WiseEye’s human presence detection has seen expanding adoption across leading global brands, driven by its ultralow power consumption of merely a few milliwatts, instant responsiveness, and privacy-centric design, perfectly aligned with the industry’s transition toward always-aware, AI-driven PCs. More notebook models are scheduled to enter mass production starting in 2026. Meanwhile, additional feature upgrades are being developed with our notebook customers to tackle more complex real-world scenarios and deliver greater user experience, all while maintaining exceptional power efficiency.

One such feature is gesture recognition that mimics keyboard input, allowing page scrolling or volume adjustment without keyboard. With large language model AI driving a shift from predefined command inputs to natural language human€“machine interaction, another advanced feature currently under development is the voice-activated keyword-spotting function, in which WiseEye serves as an ultralow power front end that performs wake-word detection, activating the CPU only when a specific trigger phrase is detected, enabling continuous audio monitoring while consuming very little power. In the surveillance domain, WiseEye AI enhances security systems by combining accurate human-object distinction with event-driven activation, significantly reducing false triggers.

In addition to the China market, where shipments to leading smart door lock vendors are already underway, we are now partnering with world-leading door lock manufacturers to introduce novel on-device AI features such as palm vein biometric access, parcel recognition, and anti-pinch protection. Recently, we introduced a state-of-the-art bimodal solution combining palm vein and facial authentication to meet customer demand for greater flexibility and reliability in smart door lock. The dual-authentication approach enhances both security and user experience, marking a significant advancement in biometric technology while still consuming extreme low power, making it ideal for door lock application which is extremely demanding for power consumption.

Several of the projects are slated for mass production starting in 2026. Notably, Himax solution complies with Europe’s General Data Protection Regulation or GDPR, one of the world’s strictest data privacy laws. Our recent exhibitions at Sectech Sweden 2025 illustrate Himax’s proactive expansion into Europe’s security and access control market, one of the most privacy-regulated and innovation-driven markets globally. Himax demonstrated its technological readiness and credibility to European system integrators, OEMs, and customers seeking secure, contactless, and power-efficient authentication solutions. Next for an update on our WiseEye Module business, which integrates [Audio Gap] image sensor, AI processor, and pre-trained no-code/low-code AI algorithm.

It’s designed to make AI simple and accessible, helping developers accelerate innovation and scale their products from prototype to commercial deployment. Thanks to its broad applicability, the WiseEye Module has been adopted across a wide range of domains, including leading brands’ upcoming smart home appliances and various security applications. Notably, our Palm Vein module has attracted strong interest across multiple industries, rapidly securing design wins in smart access, workforce management, smart door locks, and more. Many of our WiseEye Module projects are scheduled to enter mass production in 2026. In the AI sensing domain for AR and AI glasses, WiseEye AI processors continue to build strong momentum, being adopted and integrated into next-generation smart glasses by a growing number of customers, while deepening collaborations with major tech companies, brands, and startups worldwide.

Smart glasses makers are leveraging WiseEye to deliver instant responsiveness for a wide range of AI applications while maintaining extended battery life. The increasing number of design-in activities reflects broad recognition of WiseEye’s unique ability to bring intelligent, context-aware vision sensing to next-generation wearable and AR devices, specifically to empower both outward and inward vision sensing. Outward vision sensing supports surrounding perception, object recognition, and spatial awareness, while inward sensing tracks eye movements, gaze direction, and pupil dynamics to enable natural and intuitive user interactions. Together, these capabilities redefine how users engage with both digital and physical environments, paving the way for more immersive, power-efficient, and personalized AR experiences.

Moving on to our latest advancement in LCoS micro-display technology; following years of dedicated R&D and close collaboration with leading industry players, our proprietary Dual-Edge Front-lit LCoS micro-display has achieved a breakthrough, delivering an optimal combination of form factor, weight, power efficiency, performance, and cost, while offering ultra-high luminance and vibrant RGB display that meets the industry’s stringent specifications for next-generation see-through AR glasses. This breakthrough is showcased in our industry-leading Front-lit LCoS micro-display, which combines the illumination optics and LCoS panel into an ultra-compact form factor of just 0.09 c.c. and 0.2 grams, delivering up to 350,000 nits of brightness and 1 lumen output with a maximum power consumption of just 250 megawatts.

This exceptional luminance performance ensures outstanding user visibility even under bright sunlight, while the ultra-compact design enables sleek and lightweight AR glasses suitable for everyday use. Samples of our Front-lit LCoS were released early this quarter and are now being actively evaluated by several leading global tech companies and specialized smart glasses makers, with joint development efforts progressing steadily. We will announce further progress in due course. 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

Q&A Session

Operator: [Operator Instructions] Now we’ll have the first question, Donnie Teng, Nomura.

Donnie Teng: My first question is regarding to your fourth quarter guidance. So it looks like the revenue and gross margin can sequentially improve from third quarter. But just curious why we have a little bit conservative EPS guidance for the fourth quarter? And the second question is that for the CPO progress, I noticed that I think in the past couple of quarters, you indicated some breakthrough on the CPO business. And it looks like we have another progress in the revenue. So just wondering if you can elaborate more on [Technical Difficulty] we can deliver meaningful revenue from the CPO business into 2026.

Jordan Wu: Thank you, Donnie. For your first question about our seemingly better top line and gross margin guidance compared to bottom line. Well thank you for pointing that out. One of the key reasons is income tax adjustment. We — as a standard practice, we estimate our quarterly income tax based on our assessment of full year total income. And in Q3, as you know, we actually underestimated the Q3 profit in our guidance, right? And therefore, we have a major [ bit ] in our guidance. And so we underestimated Q3 profit and therefore, also the income tax expense. So [indiscernible] at the time we provided our guidance last quarter. Therefore, we have to kind of [indiscernible] income tax that we accrued in Q3 into Q4 and that turned out to be rather significant given that compared to our current level of income.

So we have to add back the income tax expense in the fourth quarter. Another major reason is higher R&D expenses during Q4. So in addition to a few relatively expensive [indiscernible] scheduled for Q4, which is just the timing issue, right? It’s not — I mean we don’t necessarily plan it that way, but it just happened that way. So we have a few more expensive tape-out schedule for Q4. And also in addition to that, we have recently been awarded the major R&D grant by Taiwan Government’s so-called — I don€™t know what is called IC innovation program, [indiscernible] IC innovation program. The government actually announced that publicly so I’m allow to talk about it. The schedule of the grant is such that we are kind of [indiscernible] R&D spending related to that project, which by the way, is about our WiseEye product line.

So we are kind of requested to speed up the spending. We are also getting a speed up in our grant but as you know, our spending has to be much higher than the grant and that’s how the [ game ] is made, right? So we have to kind of speed up the R&D spending related to that project in Q4 as well. So these are the reasons. So you are right. If I take a longer term view, there is no particular reason why our expense in Q4 are higher than those of the other three quarters of the year, but it just happened a few factors together. And again, thank you for pointing that out. And in regard to the CPO progress, your second question, together with our partner [indiscernible] our focus right now is getting the first generation product validation completed and at the same time, finalizing the development for the second generation product, which, by the way, is in a very advanced stage, i.e., the second generation product, which is targeting CPO or GPU product line, customer GPU product line.

So to recap this year, 2024 — 2025, sorry, 2025 has been a year for engineering validation with small quantity sample shipments. So in all likelihood, we will be fully ready for volume production in 2026. Now, as for the timing of the customers’ mass production and also the revenue contribution for us in 2026 next year, it is much harder for us to comment. And again, the main goal of 2026 is to complete the validation of our product and manufacturing process by key customer/partner. And we believe conservatively, there could be revenue contribution, but we don’t really estimate the revenue contribution to be significant compared to our overall revenue. Rather, we believe it will be [ still ] limited because the switch to CPO involves a pretty complex ecosystem which requires long lead time, right?

So we — our technology may be ready and our immediate customer may be ready, but then the repercussion of the switch throughout the whole ecosystem all the way down to the data center operators can be quite complex. So that is why we are not — we don’t necessarily hold a very aggressive view on that timing. However, we believe we can potentially see rather meaningful top line and bottom line contribution starting in 2027. When we expect shipments for engineering runs, that is actually, by the way, based on our assessment, it is still [indiscernible] that is only engineering loss. But that again, [indiscernible] contribution we believe can already contribute rather meaningfully to our top line and bottom line. And after that, after 2027, we should enter official [indiscernible] when the growth will likely be explosive.

But again, I want to emphasize all this — everything I said about timetable and contribution and all that are just our own best estimate for now. Ultimately, when and how the ramp will take place is a call to be made by the customers. Actually related to this we are seeing offline a question about potential market penetration of the CPO technology. So I will address the question online as well. Naturally, a bit on the timetable, our best estimate is 2028, it will be full blown mass production. And again, the growth will be explosive. And naturally, as the technology becomes proven and more mature CPO adoption, we believe will rise for AI data center application. So we believe with all the obvious benefits like substantially [indiscernible] transmission bandwidth and reducing power consumption and all that right of data transmission we all know the drill and all at a relatively low cost compared to the overall cost of a complex AI system.

The CPO technology has the potential of very, very high market penetration of data center eventually. And we are not just saying this as our own opinion. We actually got opinions from across the board, our direct customer or end customer. Everybody seems to be holding that view. So everybody is like holding the breath and watching our step by step for validation to engineering up to mass production. And so it’s very exciting times for us, we certainly under a lot of pressure, but we are quite confident we should be able to achieve what I just mentioned. But again, the ultimate timetable will be a call to be made by the customer.

Operator: [Operator Instructions]

Jordan Wu: There’s one of the question about our outlook for — particularly for automotive market products 2026. I guess the question is because we do hold a very significant market share in the automotive display market. So Display IC market, Automotive Display IC market. So I guess is probably meaningful for investors. We believe the auto market seems to be showing signs of bottoming out or bottoming out judging by the customers’ low inventory levels and strong rush orders over the last few quarters, and that is also actually the main reason for our exceeding our guidance last quarter. Having said that, the automotive market is quite sensitive to the overall economic condition and tariff. And therefore, we don’t really anticipate a very strong recovery next year.

And in our view, and in our internal business projection, we are budgeting for a mild recovery only next year. So our strategy is to maintain the technology leadership and we start to further deepen customer engagement. And a very important focus for us next year is to continue to diversify our supply chain, and this is in response to the customers’ request, some customers’ request or need for our geographical diversification of our supply chain and our production. So we have very strong confidence of our overall dominant market share right now, backed by leading technology offerings and strong design win pipelines, numbering hundreds of programs across a very diverse customer base. So we feel we are probably reaching the bottom, but next year, if there’s a rebound, we don’t anticipate a very, very strong rebound.

We believe it’s a mild recovery. That’s our [indiscernible]. Another question is what is driving your confidence in AI revenue growth? Is this a design win with a single customer or [ much ] smaller ones? Presumably you are talking about smart glasses. In our prepared remarks, we have three things for smart glasses; WiseEye for [indiscernible] application, both looking outward and inward for smart glasses that covers both AR glasses and AI glasses. And the second thing is our LCoS micro-display, which is only applicable to AR see through glasses, right? And the third one is our WLO [indiscernible] technology where we are holding what we call optical foundry service business model targeting only a very selective small number of customers. So the third one, evolving rather complex design [indiscernible] development.

So it is going to be a few years away, although we are talking about some of the most significant customers, the biggest names, some of the biggest names in the industry. So we still feel obligated to mention that as a business potential in our prepared remarks. But in terms of revenue contribution the third thing with WLO as a foundry service for [indiscernible] very big name customers, I think it’s still a few years away. WiseEye AI is an ongoing, very active ongoing progress. Customers big and small across not just U.S. major names, but also Chinese, even Koreans and Japanese are coming to us. And also there are also major customers who are offering a platform of AI or smart glasses solution. And we have been working very closely with them for WiseEye solution and our solution, our technology has been taken as the standard offering part of the standard offering.

So that platform solution based into — more production, which is anticipated to take place starting next year. I think we will see revenue contribution from our WiseEye product line. And for [indiscernible] display, which is for AR see-through glasses only, not AI glasses, you need to have glasses with display to meet our [indiscernible] solution. We — again, in our prepared remarks, we believe we are offering a combination of factors with a real product, which is quite very promising, and we believe it’s something that is fully addressing the very difficult requirements of AI gasses for now. However, that product we are only in sampling stage. So from sampling stage to ultimate mass production, it is going to take some time. So I don’t really anticipate [indiscernible] sales contribution from [indiscernible] next year and hopefully the year after because again, we are only in sampling stage and customers need to take our [indiscernible] solution to match [indiscernible] and then we start as a display solution that develop the full set of smart glasses products.

So that is still going to take some time, although our solution has been anticipated by a lot of customers, big and small across the board. But this is very new, and we are in sampling stage so it’s going to be quite an effort for us to mass production to [indiscernible] our customers. Could you give us an update on the second generation [indiscernible]? Do you expect higher revenue number with second gen? I cannot comment on specifics, but the key difference of first gen and second gen is the number of channels, right? And basically, we are more than doubling up from first gen to second gen. And actually, the technical challenge is tremendous. And that also involves a pretty fundamental revision of our optical design to achieve that goal. And customers have made it very specific that they — customers are very hopeful for the success of our second gen because with the success of our second gen, it will be a very good product idea for GPU, which as you know is something requiring high bandwidth transmission.

So upon the success and mass production of second gen, we believe certainly the revenue contribution will be significant. However, as I mentioned in my earlier Q&A we think — I think to our timetable for next year, the year after, 2028. So we don€™t want to overpromise and make people feel that it is going to be immediate revenue contribution. But second is a big deal, is a huge deal for us, for our partner, and our customer.

Operator: Okay then thank you for all your questions. I think that will be the end of the Q&A session. And I’ll pass the call back to Mr. Jordan Wu. Thank you.

Jordan Wu: Thank you, operator. As a final note, Karen Tiao, our Head of IR/PR, will maintain investor marketing activities and continue to attend investor conferences, and we will announce the details as they come about. Thank you and have a nice day.

Operator: Thank you, Jordan. And ladies and gentlemen, this concludes third quarter 2025 Earnings Conference. You may now disconnect. Thank you again. Goodbye.