Himax 3Q20 results +4

12:07 12-Nov-20

As I said, I can't tell for sure that it's not pandemic-induced, but even if it is, I see it lasting for multiple quarters.  There were already wafer shortages before the pandemic, and it's easy to imagine that worsened them and affected the whole supply chain.  Playing catch up in semiconductors takes a long time even under normal conditions, and business are being cautious about investment.  So a multi-year trend does seem pretty plausible.

On 11/12/20 11:11 AM, a subscriber wrote:

For sure, the guidance was miles better than expected (maybe too good.....leading to a sense that it isn’t durable longer term).  Do you buy the structural change story that Jordan is selling re foundry?

On 11/12/20 11:05 AM, Esekla wrote:

Well, I probably should have made it clearer that the third quarter results were preannounced.  I still see the guidance as a major improvement though, and am a little puzzled by the (lack of) market reaction.  I would agree with you that AR shouldn't matter.  However, HIMX seems to have always had a fringe investor following and there may simply be attention fatigue following the election and other earnings.  Probably all that will change with the new year, follow through in the February and May quarterly reporting, followed by reintroduction of a dividend as we progress toward summer.

On 11/12/20 10:47 AM, a subscriber wrote:

The market has always been obsessed with Himax’s exposure to AR and that part of the business appears to be quite weak.  Kind of bizarre that the stock can’t get any traction as the core business appears to be finally taking off.  Perhaps the market is correctly pricing in the durability (lack of?) of the bump in  margins and growth rates? 

The Himax conference has just concluded.  The color below doesn't change my outlook, but it is valuable for some other specific stocks as well as the macro view.  The company was unable to keep up with demand, but expects to gain market share gains across categories.  This should lead to a gradual ramp over 2021 as capacity catches up with demand.  Tablets were the strongest growth driver, and they should be up over 50% in the current quarter.  For other areas and companies:

• Resonant investors might be interested to hear that WiFi is set to become a major growth driver as well.  Though the automotive market is in a bear market, demand looks set to rebound next year as well.
  
• UDC investors might be interested to hear that smartphone OEMs were pushing for budget displays rather than AMOLED screens. 
  
• Though the trend toward the latter continues, Himax's cheaper TDDI drivers are currently in demand.  The implication is that MagnaChip may be about to see the competition I've anticipated as production shifts to China and India.
  

The scale of the rebound across Asia is surprising, but perhaps it shouldn't be.  I was just discussing the cultural differences with friend born in China last night.  They pointed to the high degree of local government information, and compliance with rules.  Others cited the long-standing practice of wearing masks whenever sick.

Despite commentary from Himax management, it's still unclear to me to what extent foundry tightness is pandemic driven.  However, demand for budget consumer products seems indicative a sustained work from home environment.  The trend toward localization of supply chains is also clear, and we're now seeing evidence of my prediction that countries and companies which can play the middle ground between east and west stand to benefit.  Xebec receiving a $3.4M investment from state-owned Shenergy to build out hydrogen infrastructure in China is an example, and Taiwan Semiconductor's recent investment in Arizona should have Intel investors shaking in their boots.

In the meantime, Himax now has strengthened balance sheet with improved debt profile and $132M (76 cents/share) in cash, both improving about 35% QoQ.  HIMX is holding its pre-market gains, and I expect more during the day.

On 11/12/20 8:03 AM, Esekla wrote:

Himax has reported its third quarter results:

• 5 cents of EPS beats by 4 cents
  
• from $239.9M of revenue, which beats by $24.9M
  
• guides 4Q20 to 15-16 cents of EPS from about $263.9M of revenue, beating by 14 cents and $53.9M

Himax is benefiting from tight foundry capacity and the shift of that market towards China, probably aided by its world-leading rebound from the pandemic.  Management thinks this trend will persist for the next few years.  These results justify a move up to the $5-6 range in my eyes.

The conference call is beginning.  I will listen and probably comment further.