Google (GOOG, GOOGL) Glass supplier Himax Technologies (NASDAQ:HIMX) has been beaten down massively over the past one month. The trigger has been a Bank of America downgrade, which downgraded the stock from buy to underperform.
Bank of America is concerned that Himax's LCoS display business is losing steam and Google Glass is still some time away to materially affect Himax's business in the near term. But long-term investors shouldn't be discouraged by this update, as Himax looks well-poised for the long run. Let's see why.
Still going strong
Himax is witnessing strong and robust growth not only in its small and medium-sized driver IC business and large-display driver products, but also in non-driver products, such as CMOS image sensors, power management ICs, touch panel controllers, programmable Gamma OP, and timing controllers.
Strong sales of smartphones and tablets in the Chinese and Korean markets are propelling Himax's growth at present. Looking ahead, Himax expects steady growth across its different business segments in the current fiscal year. Growth in smartphones, tablets, automotive displays, and wearable devices are expected to be strong drivers of Himax's business this year.
The company is also focused on gaining market share in large panel driver IC solutions. Himax's presence in the Chinese market, where a display capacity expansion is taking place, should help it benefit from the growing market. Himax provides cutting-edge technologies in large panel driver IC solutions, and has recently developed a solution that addresses thermal issues in 4K TVs. Driven by such innovation, along with its presence in the mobile market, Himax expects an improvement in sales from both existing and new customers across the world.
Demand for 4K TVs is gaining steam, and so, Himax expects to gain substantial market share in the large panel driver business in fiscal 2014.
Mobile devices to drive growth as well
On the other hand, Himax enjoys a prominent position in the smartphone and tablet category. So, it expects higher growth in sales from smartphones and tablets. The company has a comprehensive base that includes both panel makers and end-users in China, one of the fastest-growing smartphone markets in the world. In addition, Himax also provides drivers for small and medium sized applications for Tier 1 international smartphones, along with the fast-growing Chinese white-box market.
With 4G LTE being rolled out worldwide, including China, Himax expects its smartphone segment to perform even better in the future. The company has also launched an 8-mega pixel sensor product that provides high-quality imaging to target smartphones, tablets, laptops, IP cameras, surveillance, and automotive markets. Moves such as these would surely improve its growth prospects.
Google Glass prospects
Also, Himax expects its non-driver products, such as CMOS image sensors, timing controllers, touch panel controllers, power management ICs, WLED drivers, and LCOS micro-display to grow in the current fiscal. These products are seeing strong demand from its local and international clients. Himax's LCOS micro-display drivers should certainly boost the company's sales in this segment in the long run, driven by Google Glass.
While analysts might say that Google Glass is not an imminent driver for Himax, but over the long run, it is one of its most important drivers. Google recently entered into a pact with Luxottica (NYSE:LUX), the maker of Ray-Ban and Oakley brands of sunglasses. Through this deal, Google will be able to sell its Glass as a fashion accessory to a wide range of consumers around the world with the help of Luxottica's retail network. Luxottica has included both Ray-Ban and Oakley as a part of the deal. The presence of such iconic brands with Google Glass would certainly boost Himax's prospects.
Himax has struggled this year, but not all is bad for the company. The shares trade at a forward P/E of just 13.5, while also paying a dividend of 2.20%. In addition, analysts expect the company's earnings to grow at a CAGR of almost 40% for the next five years. All these bright projections, along with Himax's expected gains from mobile devices and the wearables market make the company a solid buy on the pullback.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.