I Expect That Advancements In TDDI, Tcon, And CPO Technologies Will Improve Future Prospects

Key Takeaways

• Himax Technologies is poised for growth through advancements in automotive TDDI, Tcon, and Co-Package Optics, potentially enhancing revenue significantly with market adoption.
  
• Strategic focus on WiseEye AI, smart home products, and OLED automotive displays positions Himax for strong earnings growth and improved margins.
  
• The company faces potential revenue risks due to market uncertainties, competitive pressures, and dependency on specific segments and customers, with future growth being uncertain.

Catalysts

A fabless semiconductor company, provides display imaging processing technologies in China, Taiwan, the Philippines, Korea, Japan, Europe, and the United States.

• Himax Technologies is well positioned to benefit from its advancements in automotive TDDI and Tcon technologies, which are expected to maintain growth momentum. This will likely have a positive impact on revenue as these technologies continue to be adopted in the automotive sector.
  
• The development of Co-Package Optics (CPO) technology is expected to significantly contribute to future revenue. Although mass production is anticipated to begin in 2026, the annualized potential revenue from CPO could reach hundreds of millions of dollars, driven by demand in cloud applications and potentially other sectors such as automotive and robotics.
  
• Himax's focus on WiseEye AI and its success with innovative products like smart door locks and PalmVein solutions are expected to drive strong future earnings growth. This is due to its competitive edge in ultralow power AI and the expansion of applications in smart home and AIoT devices.
  
• Strategic alliances in the OLED sector, particularly in automotive displays, position Himax to capture new growth opportunities. This aligns with the anticipated market shift toward OLED, positively impacting future revenues as these projects enter mass production.
  
• The company's efforts in diversifying foundry sources and enhancing its product mix towards high-margin segments such as automotive ICs and CPO technology are likely to continue driving improvements in gross margins, thereby positively affecting net margins.

Himax Technologies Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Himax Technologies's revenue will grow by 13.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.8% today to 14.1% in 3 years time.
• Analysts expect earnings to reach $187.2 million (and earnings per share of $1.19) by about March 2028, up from $79.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 14.3x on those 2028 earnings, down from 20.7x today. This future PE is lower than the current PE for the US Semiconductor industry at 29.4x.
• Analysts expect the number of shares outstanding to grow by 0.16% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.89%, as per the Simply Wall St company report.

Himax Technologies Future Earnings Per Share Growth

Risks

• Persistent global demand weakness and uncertainty about market trends could lead to conservative purchasing decisions and inventory management by panel customers, impacting Himax's future revenue growth and earnings.
  
• Revenue from large display drivers experienced a 28.3% year-over-year decline, primarily due to customer destocking and heightened price competition, particularly from Chinese peers, which could put downward pressure on margins and overall earnings.
  
• Himax's significant revenue exposure to the automotive segment, while currently a growth driver, could pose a risk if the automotive market experiences a downturn or if Himax fails to keep pace with technological advancements, potentially affecting future revenues and net margins.
  
• The 2025 revenue guidance includes only engineering validation and sample shipments for the co-packaged optics (CPO) technology, with mass production uncertain and not expected until 2026, indicating potential delays in revenue contributions from this new technology.
  
• Himax's reliance on a limited number of panel customers for its automotive display IC solutions constrains revenue diversity, leaving the company vulnerable to competitive pressures or shifts in those customers' supply chain strategies, potentially impacting future sales and profit margins.

Valuation

• The analysts have a consensus price target of $11.225 for Himax Technologies based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $15.0, and the most bearish reporting a price target of just $6.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $1.3 billion, earnings will come to $187.2 million, and it would be trading on a PE ratio of 14.3x, assuming you use a discount rate of 10.9%.
• Given the current share price of $9.46, the analyst price target of $11.22 is 15.7% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.