Himax Activity Heating Up, Expert Sees Next-Gen Displays Driving Business

• In a report published Thursday, Northland Capital Markets analysts Tom Sepenzis upgraded shares of Himax Technologies, Inc. (ADR) HIMX from Market Perform to Outperform.
• The firm raised its price target from $7.00 to $10.00.
• The analysts argued that, in addition to its leading market position in augmented reality, the company might have some new opportunities in the virtual reality arena.

Himax may face new opportunities in the virtual reality segment soon, in addition to its position as the market leader in augmented reality. Moreover, its core business seems to be stabilizing, “with handset inventory levels in China so low that rush ordering has begun in small batches.”

The report highlighted a few key points in Northland’s investment thesis.

The analysts believe the company is “experiencing slightly better performance from its large panel display business during the December quarter, led by its Chinese panel making customers, BOE in particular.” ASP pressure has somewhat eased on the back of the growth in 4K displays, and this should continue to a certain degree heading into the New Year.

After several months of delay, it seems like AMOLED may enter Himax’s mix in the second quarter of 2016, “and while the ASP is likely lower than the targeted figure, the volume will help the overall small/medium panel business more than modeled in 2016."

Augmented Reality

Sepenzis then went into augmented reality, an arena where Himax has been a leader for quite some time now. One of the firm's customers is set to begin production in the first quarter of 2016, and the analysts believe that a second client will enter the market around the second half of the year. Moreover, they anticipate that “both of these products will experience relatively low unit volumes, however, given the initial price points. The first product is expected to launch with a $3k price tag, and the second one is unknown at this point, but launched its first AR attempt at $1.5k.”

Virtual Reality

Finally, the report looked into virtual reality. The analysts believe that virtual reality “will capture broad market appeal” before augmented reality, given the latter’s high price points. The firm sees the virtual reality market kicking off as soon as next year, with the launch of Oculus Rift and other virtual reality devices.

While the technology is still in its infancy, the firm continues to believe virtual reality will eventually become a large component of the computing experience. “HIMX has not had significant content in VR displays outside of timing controllers, but we believe that is changing, and expect that it will see growing content through its display drivers is leading headgear as early as the second half of next year,” the analysts concluded.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.