Himax Technologies (HIMX) is taking a breather today and down about 4%. Perhaps, this is also due to an article on InsiderMonkey suggesting that Himax is "still highly reliant on the declining LCD business" and recommending a sell. My view differs. I recommend buying on the dips as the positives outweigh the negatives.
Ready, Set, Grow!
In the recent earnings report, the forecast for exceptional growth in Q2 is difficult to ignore even as the company did say that large panel revenue is down 15% from a year ago. While drivers for large panels now makeup 34.2% of the business (down from a high of 42.8% a year ago), the drivers for small panels now makeup 51.9% of the business (up from 43.4% a year ago). It is true that large panel drivers still form a large part of the revenue stream, but it is also true that the growth in the small/ medium panel business more than offsets the loss. The best big picture view of the business is given in the following table:
Source: MarketWatch Press Release
A Chip is A Chip
Unlike Corning (GLW), where size matters -- and selling more Gorilla Glass does not equate to better revenue -- no such headwinds affect Himax. A controller is a controller. A chip is a chip. Hence, I fully believe the company's projection for Q2 revenue to increase by 17% to 20% sequentially to be fully achievable.
The New TVs On the Block
Being aware that Samsung (GM:SSNLF) and Sony (SNE) have done poorly in the large panel/ TV display portion of their diversified businesses, the news that Himax is working under similar changes in consumer preferences (movement from large to focus on small displays) does not at all raise panic. While noticing Sharp (OTCPK:SHCAY) suffered the most in sales as it relied on TV screens for most of its business, I do not think Himax can be considered strictly in light of the TV business. Samsung and Sony have not suddenly stopped producing televisions and large displays are not about to go away. In fact, this particular segment is undergoing massive change. The new screens on the horizon are bigger, thinner, crisper, and more energy efficient. They are four times sharper than existing high definition televisions. Recent news of celebrity interest in ordering the new kids on the block suggest the future will once again brighten on large panels.
To suggest that the TV business is dead is wrong. In my view, it would be akin to suggesting the car business is dead -- just when they are about to become sexier. The 80s and 90s were the era of boxy cars. In recent years, cars look that much better. The 2013 Consumer Electronics Show unveiled many televisions that have lost their traditional look. As an example, consider Samsung's S9. It looks more like a work of art and form is now as important as function.
Further to my argument to buy Himax on the dips, I would like to emphasize that Himax is not a one-trick-pony but a diversified fabless semiconductor powerhouse. Quoting from the company website, its "display driver ICs and timing controllers are used in TVs, laptops, monitors, cellphones, tablets, digital cameras, car navigations systems, and many other consumer electronics devices." This is a company that makes products with diversified applications helping to enhance our life and provide peace of mind and security. The diversity provides resilience and allows it to take advantage of any changes in consumer preferences. At the end of the day, Himax technology is going to be in the TV you buy, or else the tablet you get. A chip is a chip. Cha-ching!