Is Himax Stock A Buy?

Himax Technologies, Inc. (NASDAQ:HIMX) is a leading Taiwanese fabless semiconductor manufacturer and supplier. The company is experienced all-time market highs in Q1 2021, thanks to a global chip shortage caused by the push to virtual work.

You likely use its chips in your smartphone, tablet, television, or even your car dashboard, so is Himax stock a Buy?

The company’s expertise is in video display driver chips, which are used to show pixels on your digital devices. It’s also pushing into artificial intelligence and other applications for its semiconductors. As the pandemic stretches on, it’s clear there’s no slowdown in the need for these technologies.

Sales are growing, and more people need more visual computer power in more devices than ever. If the company can continue manufacturing quality chips and getting them into the market, it could find new business from chip-starving manufacturers ranging from Apple (AAPL) and Samsung to Sony (SNE) and GM (GM).

Will Himax provide returns for investors or leave portfolios with a blurry vision of losses?

Himax Revenue Had Been Sluggish But Not Anymore 

Himax Technologies is a fabless semiconductor manufacturer and distributor. It focuses on display driver integrated circuits (IC) and timing controller used in laptops, smartphones, tablets, monitors, televisions, digital cameras, car navigation, and more.

Despite being a worldwide market leader in its industry, the company had disappointing results in the years leading up to the pandemic. Revenue lagged as companies shied away from display panels for voice-activated systems that require no screen.

This caused the company to pivot into other markets. It creates chipsets now for artificial intelligence, AR/VR, and other high-tech uses. The 2021 chip shortage provided Himax management with an opportunity to continue gaining customers and expanding its market share, something not easy to do in semiconductors.

Chip manufacturing is a capital-intensive business, and that leaves the company with not much free cash flow while the LCD market is flooded with competition. However, Himax is a high output capacity, and that could be its saving grace for at least the foreseeable future.

This has investors wondering if now’s a good time to buy into Himax stock.

Is Himax Stock A Buy?

Himax Technologies commenced the year with a market capitalization of $1.5 billion give or take, which has since ballooned to over $2.5 billion.

By 2021, it had been broadcasted widely that a chip shortage caused supply problems for everything from gaming consoles to new cars. The downstream effects left brands looking far and wide for new chips and could be a boon for the company.

Fourth quarter 2020 results showed 57.7 percent year-over-year sales growth for a total of $275.8 million. From that, adjusted earnings grew 170 percent to nearly $0.20 per share. The company attributed much of its near-term success to non-display-driver products for 3D sensing and artificial intelligence.

This could mean the company gets involved deeply in the autonomous vehicle race, as several 3D-sensing technologies like Lidar are used. And the company continues a slow growth through the quarter after earnings.

But just like any investment, Himax has its inherent risks.

Has The Himax Stock Rollercoaster Ended?

The recent past has been a positive spell for the company, but long-term Himax investors have been on a roller coaster over past years.

Share prices were up and down and overall highly volatile, as were dividend payments. The company occasionally pays a small annual dividend, but it’s never been consistent and stopped in July 2018.

Much of the company’s future growth potential lies in technologies that still haven’t blossomed, like virtual reality and augmented reality. The boon in artificial intelligence has been supportive, but there’s no guarantee that growth will be sustainable.

Investors should prepare for more ups and downs with this stock as it continues through the 2020s. The visual display market is cyclical – product cycles heavily determine demand, as they’re simply a component of the end consumer electronics.

The company attempted to expand into larger screen displays like those used in commercial advertising in Times Square or on digital billboards. But the pandemic pumped the brakes on that opportunity, as fewer brands are spending fewer dollars to reach fewer people in public places.

And the company faces head-on some titans of industry.

Himax Competes Against Giants

Although it’s a global leader in its niche, Himax stands in the shadow of Taiwan Semiconductor. It also has competition from the likes of NEC Electronics and Teledyne in its own niche. As it expands, it could step on the toes of Nvidia (NVDA), AMD (AMD), Intel (INTC), and Qualcomm (QCOM).

Each of these chipmakers is scrambling to supply the shortage, and global tech companies like Apple (AAPL), Microsoft (MSFT), and Google (GOOG) all have plans to bring their own in-house chips to the table.

This creates a crowded market on all ends, and Himax needs to fire on all cylinders if it wants to keep pace, much less win. It’s unlikely that any one company will dominate all markets, but Himax does have an open lane to grow much larger and faster than anyone expects based on past performance.

Is Himax Stock A Buy? The Bottom Line

Himax is a semiconductor maker based in Taiwan. Its biggest money maker is display-driver chips, but it’s expanding into advanced technologies, like AI, AR/VR, and 3D scanning. As these technologies develop and become more prolific in the market, Himax should benefit.

However, those future profits aren’t realized yet. It’s working in a capital-intensive industry against competitors with deeper pockets. The company had a dismal performance in prior years, but the trend towards virtualization breathed new life into its revenue streams. If it can continue its growth path, it has the potential to catch a wave of popularity like Nvidia (NVDA) in times past.

---

The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.