OREANDA-NEWS. Himax Technologies, Inc., a leading supplier and fabless manufacturer of display drivers and other semiconductor products, announced its financial results for the first quarter ended March 31, 2016.

The first quarter revenue of $180.3 million represented a 1.3% sequential increase and a 0.7% increase from the same period last year. Revenue from large panel display drivers was $65.7 million, up 5.8% sequentially, and up 14.1% from a year ago. Large panel driver ICs accounted for 36.4% of the Company’s total revenues for the first quarter, compared to 34.9% in the last quarter and 32.2% a year ago. Without the earthquake mentioned earlier, Himax could have achieved double digit sequential growth it indicated earlier for this product line. Monitor demand continued to show strength for the past few quarters as UHD resolution models started to outgrow legacy models. TV remained the bright spot as in the last few quarters with 4K TV penetration doubled from the previous quarter. To sum up, if look only at China, driver IC business for TVs and large panel overall grew phenomenally both sequentially and year-over-year. In comparison, worldwide TV panel shipments actually declined over 10% during the same period compared to the previous quarter, according to market research firm IHS. The Company’s leading market share in China, coupled with rapid capacity ramping of Chinese panel customers and more in-sourcing from their local set maker customers, have led to this favorable result. It is especially worth highlighting that Himax’s engineering collaboration and design-in activities with Chinese panel customers remain robust despite the soft market sentiment.

Revenue for small and medium-sized drivers came in slightly better than guided at $79.4 million, down 3.0% sequentially and down 8.7% from the same period last year. Driver ICs for small and medium-sized applications accounted for 44.1% of total sales for the first quarter, as compared to 46.0% in the previous quarter and 48.6% a year ago. The main reason behind the year-over-year decline was the slowdown of business from the Company’s primary Korean end customer as they replaced much of the use of LCD displays, for which Himax was a major IC vendor, with AMOLED displays for their smartphone products. Himax only started the shipment of AMOLED driver IC in March 2016, thereby creating a gap in the small and medium sized business compared to the same period last year. Without this, the Company’s small and medium driver grew mid-teens versus the same period last year while smartphone driver ICs grew over 20%. Sequentially, first quarter sales for smartphones grew low single digit despite fewer working days around Chinese New Year. The positive momentum came from Himax’s Chinese smartphone customers, including a new first-tier player that was added at the end of the fourth quarter of 2015, launching new models and replenishing inventories. But again, the strength was offset by double digit sequential decline in tablets.

As in the last few years, the best-performing category among driver ICs used in small and medium-sized panels continued to be those used in automotive with Q1 revenue up 4% from the previous quarter. It grew double digit from the same period last year.

Revenues from non-driver businesses were $35.2 million, up 3.4% sequentially and up 2.2% from the same period last year. Non-driver products accounted for 19.5% of total revenues, as compared to 19.1% in the previous quarter and 19.2% a year ago. The sequential growth in the non-driver segment was mainly driven by AR/VR related businesses as LCOS and WLO revenues more than doubled during the quarter. Himax has been making shipments for multiple customers, including a major U.S. customer who has recently started shipping their new AR devices. Additionally, timing controller, ASIC service and CMOS image sensor product lines also enjoyed sequential growth due to mass production of new design wins. The year-over-year growth was also led by AR/VR related businesses and timing controllers, partially offset by the deceleration in out-cell touch controllers.

GAAP gross margin for the first quarter was 26.2%, a 330 basis points increase from 22.9% in the previous quarter and up 50 basis points from 25.7% in the same period last year, exceeding the original guidance of 25%. The margin improvement mainly came from better product mix in small and medium-sized driver ICs and non-driver product segments. Major contributors included the accelerating higher end FHD driver IC for smartphones and strong development fees from AR/VR related businesses, as well as improving gross margins for the CMOS image sensor and touch controller product lines. Gross margin expansion was also a testament to Himax cost reduction measures. Gross margin improvement remains one of the Company’s business focuses. 

First quarter GAAP operating expenses were $32.0 million in the first quarter of 2016, down 0.4% from the previous quarter and up 5.3% from a year ago. First quarter operating expenses included a one-time donation of NT$10 million, or US$0.3 million, to the earthquake relief fund initiated by the Tainan Municipal Government. Operating expenses increased from the first quarter of 2015 due to higher expenses for additional headcount to support new AR/VR projects, annual salary increases, and increase in R&D expenses. Himax continues to streamline core business R&D activities and implement other expense control measures.

GAAP operating income for the first quarter of 2016 was $15.2 million or 8.4% of sales, up 76.3% sequentially and down 3.0% year-over-year.

Reported GAAP net income for the first quarter was $13.1 million, or 7.6 cents per diluted ADS, compared to GAAP net income of $6.1 million, or 3.6 cents per diluted ADS, in the previous quarter and GAAP net income of $12.6 million, or 7.3 cents per diluted ADS, for the same period last year. GAAP net income increased 113.5% from the previous quarter and increased 4.2% year-over-year. GAAP EPS exceeded the Company’s 5.5 to 7.5 cents guided range.

In the Company’s last earnings call, it has assumed a 20% income tax rate, calculated based on exchange rate of NTD 33.45 against the USD, the exchange rate at the beginning of February 2016. As it turned out, the NTD has appreciated against the USD since February. Himax has thus adjusted its income tax rate to 15%.

The sequential and year-over-year profit increase was a combination of higher revenue, much improved gross margin, together with lower income tax.

First quarter non-GAAP net income, which excludes the share-based compensation and acquisition-related charges, was $13.5 million, or 7.8 cents per diluted ADS, compared to $6.5 million last quarter and $13.1 million the same period last year. This represents an increase of 107.2% sequentially and increase of 2.9% year-over-year.

Balance Sheet and Cash Flow

Himax had $168.0 million of cash, cash equivalents and marketable securities at the end of March 2016, compared to $178.8 million at the same time last year and $148.3 million a quarter ago. On top of the above cash position, restricted cash was $180.5 million at the end of the quarter. The restricted cash is mainly used to guarantee the company’s short term loan for the same amount. Himax continues to maintain a very strong balance sheet and remains a debt-free company.

Inventories as of March 31, 2016 were $182.8 million, down from $186.1 million a year ago and up from $171.4 million a quarter ago. Himax was able to lower the inventory year-over-year because of demand rebound. The sequentially higher inventory shows the Company’s confidence in strong quarters to come. Accounts receivable at the end of March 2016 were $173.0 million as compared to $192.7 million a year ago and $177.2 million last quarter. DSO was 87 days at the end of March 2016, as compared to 97 days a year ago and 93 days at end of the last quarter. The decrease of DSO was due to more efficient cash collection from credit sales.

Net cash inflow from operating activities for the first quarter was $21.5 million as compared to an outflow of $3.7 million for the first quarter of 2015 and an inflow of $25.9 million for the fourth quarter of 2015. The year-over-year increase is mainly due to lower working capital. The sequential decrease in cash flow was a result of higher net profit offset by higher working capital.

Capital expenditures were $2.2 million in the first quarter of 2016 versus $1.8 million a year ago and $3.6 million last quarter. The capital expenditure in the first quarter consisted mainly of facility updates and capacity expansion for LCOS and WLO product lines.

Share Buyback Update

As of March 31, 2016, Himax had 171.9 million ADS outstanding, unchanged from last quarter. On a fully diluted basis, the total ADS outstanding are 172.4 million.

2016 Investor Outreach and Conferences

Ms. Jackie Chang, CFO, Ms. Nadiya Chen and Ms. Penny Lin, internal IR Managers, and Mr. John Mattio, Himax’s US-based IR, will maintain corporate access for shareholders and attend future investor conferences in the U.S. and Hong Kong. If you are interested in speaking with the management, please contact Himax’s US or Taiwan-based investor relations contact at the numbers below.