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Is Himax a Sell at 52-Week High?

- By Harsh Jain

After disappointing investors in 2016, Himax Technologies Inc. (HIMX) has displayed an astonishing performance this year. The stock is up more than 70% year to date and looks like it will continue marching upward.

The company's large-panel driver business faced many problems until 2014, but it has made a striking comeback since. Although revenue dropped to its lowest level in the second quarter, it does not seem to be a long-term issue. That was primarily due to the weak demand of panel display driver for TVs and smartphones.


In the prior quarter, the large panel driver business accounted for nearly 35% of the company's overall business and could continue moving upward as the demand for 4K TVs is projected to grow at a robust rate.

The most significant thing is that China is the key player of the 4K TV market, and Himax is the leading display driver supplier to Chinese TV panel manufacturers. According to a report from IHS Markit, China will continue to dominate the 4K TV market, with 42% of TVs overall this year projected to ship with 4K panels.

Source: IHS Markit

On the other hand, Apple (AAPL) showcased its new iPhone models including iPhone 8, iPhone 8 Plus and iPhone X on Sept. 12. These new generation iPhones are built with new enhanced cameras as well as augmented reality capabilities. The tech giant has introduced the first iPhone with 3D sensing feature through vertical cavity surface emitting laser (VCSEL) tech.

Although Apple has signed a deal with Lumentum Holdings (LITE) and Finisar (FNSR) for supplying 3D-sensing modules for iPhone X, Himax could be among the indirect beneficiaries. Himax's role in so-called 3D sensing may be helped by the fact that Apple said 3D sensing as well as augmented reality are the key features of iPhone X.

Recently, Himax partnered with Qualcomm (QCOM) to hasten the development of a high-resolution, low-power 3D depth-sensing camera system. This appears to be a win-win deal for both companies as more smartphones and Internet of Things (IoT) devices are becoming fit for 3D-sensing technology.

As a matter of fact, 3D sensing capability for augmented reality applications and facial recognition is swiftly becoming a necessary feature for Tier-1 original equipment manufacturers (OEMs). In all, the market for 3D sensing is poised to grow at a rapid pace, and Qualcomm and Himax are getting ready to gain an early lead in the 3D sensing space.

Apart from this, Tom Sepenzis, an analyst at Northland Capital Market, believes that other smartphone manufacturers including Samsung (SSNLF) and Xiaomi will also plan to encompass 3D sensing modules in their high-end smartphones. Sepenzis said these smartphone manufacturers will likely turn to Qualcomm and Himax for 3D sensing.

As a result, Sepenzis upgraded the rating on Himax to outperform and raised his price target to $15 per share, keeping in mind the strong outlook for 3D sensing technology market.

Summing up

Himax has faced many problems over the past few years, but now it looks like the company is headed back in the right direction. The company has several significant catalysts in the second half of this year that could substantially boost its revenue.

Eventually, the 3D sensing market will continue growing, and Himax appears to be in a great position to gain huge benefits going forward. This could also bring its financials back on track after a period of steady drops in the past several quarters.

In all, long-term shareholders should continue holding the stock as expected sales growth should push the stock higher.

Disclosure: No positions in the stocks mentioned in this article.

This article first appeared on GuruFocus.


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