Wake up Apple (NASDAQ:AAPL), Microsoft (NASDAQ:MSFT), and Samsung (OTC:SSNLF). It's Monday morning and Google (NASDAQ:GOOG) just launched its latest salvo in the war for mobile operating system dominance.
The company and Himax (NASDAQ:HIMX) just announced an agreement by which GOOG will invest in Himax Display, a subsidiary of HIMX. The purpose of the investment is to "fund production upgrades, expand capacity and further enhance production capabilities at HDI's facilities that produce liquid crystal on silicon ("LCOS") chips and modules used in applications including head-mounted display (HMD) such as Google Glass, head-up display (HUD) and pico-projector products."
Under the Agreement, Google will purchase preferred shares in HDI at an undisclosed price. Upon the closing of the transaction, Google will hold a 6.3% of HDI and have the option to raise its stake to 14.8% within one year at the same price. HIMX currently holds 81.5% of HDI with the remainder largely held by institutions, including Intel Capital Corporation.
The news represents the first public confirmation of HIMX's involvement in Google Glass, validating long-standing assertions that HIMX would be supplying the microdisplay technology for Glass. This morning, PoisedToTriple Research upgraded Himax, placing its highest rating on the company. The upgrade report stated, "This signifies that Google intends to prepare for more than 2 million units of annual Glass production. In an earlier report, we discussed our belief that HIMX would raise its LCOS capacity from 2 million to 7 million. Google's investment confirms our thesis and infers that HIMX's 2 million units of LCOS capacity was not viewed as sufficient to Google."
Shares of HIMX were approaching $7.00 in early morning trade, up 30% from Friday's close.
The boost in share price appears justified. The agreement with Google solidifies HIMX's role in Glass, rebuffing numerous rumors that HIMX competitors would replace their LCOS display in Glass. Most recently, a report surfaced claiming that Samsung's OLED technology would replace HIMX's LCOS. It is now clear that those assertions were unfounded.
It is also clear that battle lines are being drawn with Samsung seen as a competitor more than an ally. In recent months, Apple has taken more aggressive steps to pull away from Samsung, sparking speculation that AAPL will seek alternative partners for its image processing capabilities. These capabilities are critical to AAPL's retina display, which has been largely powered by Samsung. With the operating system battle moving to the living room, Android and iOS-enabled UltraHD television sets could be the next major frontier.
With Samsung's investment in its own version of Android, the company is breaking from the Google ranks. It is looking to become a bigger player, rather than a mere hardware vendor in Google and Apple's ecosystems. The set-up is reminiscent of the early stages of the smartphone wars, during which a scramble for intellectual property (patent) acquisitions ensued. Google and Samsung emerged as viable global challengers to Apple's dominance, with the latter eventually wresting market share leadership from the Cupertino giant.
This morning's announcement raises the stakes and places all competitors on alert. The mobile operating system battle front is indeed expanding -- well beyond the smartphone and into watches, TVs, automotive displays … and of course, Glass.
Disclosure: I am long HIMX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.