• Q2 revenue increased 1.3% sequentially to $187.0M, exceed the guidance of a slight decrease within 5.0% sequentially
• Product sales: large driver ICs, 31.8% of revenue, down 3.1% QoQ; small and medium-sized driver ICs, 52.8% of revenue, up 12.9% QoQ; non-driver products, 15.4% of revenue, down 19.5% QoQ
• Q2 IFRS gross margin was 21.0%, down 170 bps sequentially, exceeding the guidance of between 20.2% to 20.6%, compared to the first quarter's 22.7%
• Q2 IFRS profit was $1.4M, or 0.8 cents per diluted ADS, exceeding the guidance of a loss of 1.5 cents to 0.5 cents per diluted ADS. It is lower than profit of $3.3M, or 1.9 cents per diluted ADS in Q1 2020
• Q2 non-IFRS profit was $1.7M, or 1.0 cents per diluted ADS, exceeding the guidance of a loss of 1.3 to 0.3 cents per diluted ADS. It is lower than profit of $3.8M, or 2.2 cents per diluted ADS in Q1 2020
• See strong sales for notebook and monitor markets in the first half with the momentum now switching to TV and smartphone, while tablet is set to stay robust throughout the whole year. Demand visibility has therefore been much improved from the first half
• Company's high frame rate TDDI products for smartphone have been adopted by several top-tier customers and have begun mass production in Q2. The Company's traditional DDIC for smartphone declined significantly in Q2, a trend that was expected as the market was quickly being replaced by TDDI and AMOLED for smartphone application. The Company expects to see a short-term spike of traditional DDIC demand for smartphone during Q3, arising from orders from certain brand customers
• Tablet ICs will be a major growth area throughout 2020 with a strong forecast for both discrete driver ICs and TDDI in Q3
• Himax pioneered the TDDI solution for tablet and is the dominant of supplier for literally all leading Android brand names. Just two quarters into mass production, already accounted for 37.0% of tablet IC sales and represented almost 9.0% of total revenues in Q2. Expect a more than 20% sequential increase in Q3 with the momentum to continue into Q4
• Backed by Himax's leading market position in new technologies for automotive display, the Company has a strong and positive long-term outlook for the automotive segment. Expect to deliver a mid-single-digit sequential increase in Q3
• Company's WiseEye smart sensing solution is being integrated into a wide range of applications such as notebook, TV, doorbell, door lock, air conditioner, etc. For only key parts offering, the strategy is to actively participate in the ecosystems led by the world's leading AI and cloud service providers. A recent announcement for the collaboration with Google whereby, running on Google's TensorFlow Lite for Microcontrollers kernel, Himax provided its AI processor with CNN based SDK for developers to generate deep learning inferences with video and voice commands data to boost overall system performance while consuming extremely low power

The Company recorded net revenues of $187.0 million, an increase of 1.3% sequentially and an increase of 10.4% compared to the same period last year. The 1.3% sequential increase of revenue exceeded its guidance of a slight decrease within 5% quarter-over-quarter. Higher demand of large display drivers for monitors and greater-than-expected shipment volume for both smartphone and tablet contributed to the better-than-guided sales. Gross margin was 21.0%, exceeding the prior guidance of between 20.2% to 20.6% due to a more favorable product mix among large display products. IFRS profit per diluted ADS was 0.8 cents, exceeding its guidance of a loss of 1.5 cents to 0.5 cents. Strong sales, improved gross margin and lower-than-expected operating expenses contributed to the better-than-expected earnings results. Non-IFRS profit per diluted ADS was 1.0 cents, exceeding its guidance of a loss of 1.3 cents to 0.3 cents. 

Revenue from large display drivers was $59.5 million, down 3.1% sequentially and up 0.2% year-over-year. The sequential decline was driven by lower shipments into TVs due to weakness in the global TV market which was severely impacted by the Covid-19 outbreak. TV segment revenues decreased 21.7% year-over-year. Offsetting the weakness in the TV segment was a surge in demand for telework and online education tools that spurred the sales in its monitor and notebook segments to an increase of around 60% year-over-year in Q2. Large panel driver ICs accounted for 31.8% of total revenues for the quarter, compared to 33.2% in the first quarter of 2020 and 35.0% a year ago.

Revenue for small and medium-sized display drivers was $98.8 million, up 12.9% sequentially and 20.9% year-over-year. The sequential growth was driven primarily by tablet and smartphone sales but offset by a decrease in the automobile segment. The strong year-over-year growth was attributable to remarkable tablet sales, especially its TDDI products for tablet. The segment accounted for 52.8% of total sales for the quarter, compared to 47.4% in the first quarter of 2020 and 48.3% a year ago.

Sales into smartphones were up 10.9% sequentially but down 26.8% year-over-year. Himax's smartphone TDDI was up 69.0% sequentially and up 0.3% from the same period last year. Strength in the smartphone TDDI segment reflected customers' aggressive new product launch plans with our TDDI solutions. The Company reported earlier that the launch of several customers' new smartphones with its TDDI solution inside was delayed because of the pandemic. Many of those projects started mass production in Q2, leading to the strong sequential growth. Sales of traditional DDICs for smartphone declined by 43.6% sequentially and were down 58.3% from same period last year. Himax's traditional DDIC, which represents just 26.3% of the smartphone segment in Q2, declined significantly, a trend that was expected as it has repeatedly reported that the traditional DDIC was quickly being replaced by TDDI and AMOLED for smartphone application. Himax expects to see a short-term spike of traditional DDIC demand for smartphone during the third quarter, arising from orders from certain brand customers. However, again, barring short-term fluctuations, the Company expects to see continuous declines in the traditional DDIC for smartphone.

As anticipated, boosted by the strong momentum in both traditional discrete driver IC and TDDI product lines, tablet was the best performing product category of all in Q2, up 55.1% sequentially and 174.8% year-over-year. It represented around 23.0% of the Company's total sales in Q2. Himax expects this product segment to continue to grow in the second half as the overall market for tablet looks to remain robust thanks to work-from-home and online education demands. In addition, there is new demand for tablet TDDI, of which the sales were up 83.2% sequentially in Q2, as in-cell touch display is quickly becoming a new mainstream for the Android tablet.

Second quarter revenue from the Company's non-driver businesses was $28.7 million, down 19.5% sequentially but up 1.7% year-over-year. The sequential decrease was mainly due to significant shipment reduction of the WLO product to an anchor customer and lower engineering fee income for other non-driver products. Offsetting the weakness in WLO, CMOS image sensors had a higher revenue contribution from notebook and IP camera applications for remote work and online education purposes. Non-driver products accounted for 15.4% of total revenues, as compared to 19.4% in the first quarter of 2020 and 16.7% a year ago.

Gross margin for the second quarter was 21.0%, down 170 basis points sequentially but up 150 basis points from the same period last year. The sequential decrease was caused by lower WLO shipment and weak automotive sales, two of our higher gross margin products. A decline in engineering fees received was also a factor behind the sequential decline. On a year-over-year basis, it was up 1.5% mainly due to a more favorable product mix with more shipments of WLO and Tcon products.

IFRS operating margin for the second quarter was 0.9%, down from 2.5% in the prior quarter but up from -3.5% in the same period last year. The sequential decrease was mainly due to lower gross margin. The year-over-year improvement was primarily a result of higher sales, better gross margin and lower operating expenses. Second quarter non-IFRS operating profit was $2.1 million, or 1.1% of sales, lower from non-IFRS operating profit of $5.3 million, or 2.9% of sales last quarter, but up from -3.2% for the same period last year.

Himax had $107.1 million of cash, cash equivalents and other financial assets as of the end of June 2020, compared to $122.4 million at the same time last year and $126.6 million a quarter ago. The lower cash balance as of the end of the second quarter was mainly a result of a repayment of unsecured borrowings of $9.4 million and an operating cash outflow of $9.2 million during the quarter. On top of the cash position, restricted cash was $164.0 million at the end of the quarter, the same as the preceding quarter and a year ago. The restricted cash is mainly used to guarantee the secured short-term borrowing for the same amount. The Company had $58.4 million of unsecured short-term loan as of the end of Q2, compared to $67.9 million a quarter ago and $77.0 million at the same time last year.

Himax's inventories as of June 30, 2020 were $161.5 million, up from $148.4 million last quarter but down from $188.5 million a year ago. In response to an industry-wide foundry capacity shortage and in preparation for a strong Q3 forecast, the Company had to increase inventory levels during Q2. The Company believes it inventory position is healthy given the solid forecast and purchase orders received from customers. While Himax monitors its inventory carefully by working closely with its customers, the Company will continue to build up its inventory position aggressively in the foreseeable future given the prevailing severe foundry capacity shortage in the market place. The Company expects the inventory level to be significantly lower over the course of Q3, again, because of very tight foundry capacity and strong customer demands.

While Covid-19 does not look to be going away anytime soon, most countries have greatly eased lockdowns while still taking measures to contain the spread of the virus. Although the pandemic has brought major disruptions to the markets Himax operates in, many of the Company's panel customers have been fast to react to the changing environment by quickly shifting their production to where the demands are. What that reflected in Himax's business is the very strong sales for notebook and monitor markets in the first half with the momentum now switching to TV and smartphone, while tablet is set to stay robust throughout the whole year. While businesses have been largely reopened, a big part of the society still stays mostly at home with much of the activity being operated online. The "stay-at-home" economy has proven to benefit several consumer electronics markets to which we supply our products. Himax's demand visibility has therefore been much improved from the first half. However, the industry is going through a severe foundry capacity shortage right now which is limiting the growth in almost all of the Company's businesses, especially the smartphone and tablet TDDI as well as CMOS image sensor products. 

For the monitor segment, following a demand surge in the previous two quarters, Himax expects customers' inventory to correct, resulting in a sequential decrease in Q3. In the notebook segment, the Company sees continuous demand fueled particularly by enterprise and e-learning as it approaches the back to school season. Himax's businesses in the high-end monitor and new generation low power notebook products, where Himax is the market leader in DDICs and Tcon, will benefit significantly from these trends.

As Himax discussed previously, a major development the Company is seeing in the marketplace is the increasing utilization of the OLED display for smartphone. This is due to expanded AMOLED capacity as well as increased demand for under-display fingerprint technology that is only available in the AMOLED display currently. Himax is encouraged by the progress it has made and is collaborating closely with leading panel makers across China for AMOLED product development.

Turning to the tablet business, Himax expects its tablet ICs to be a major growth area throughout 2020 with a strong forecast for both discrete driver ICs and TDDI in the third quarter. Tablet demand is picking up significantly in the wake of the Covid-19 outbreak that is fueling remote work and learning. As mentioned in previous earnings calls, Himax pioneered the TDDI solution for tablet and is the dominant of supplier for literally all leading Android brand names. Tablet TDDI, just two quarters into mass production, already accounted for around 37.0% of its tablet IC sales and, if looked at as a separate product category, represented almost 9.0% of the Company's total revenues in Q2. Himax expects an increase of more than 20% sequentially for its tablet TDDI next quarter with the momentum to continue into Q4. Tablet in-cell TDDI offers the benefits of lower cost and a simplified supply chain and represents an easier manufacturing process for panel makers. For consumers, it offers a lighter weight, slimmer and more stylish design as well as improved touch accuracy with added option for active stylus.

Turning to the automotive sector, the global automobile sector has been badly hit by Covid-19 and the market outlook remains uncertain during the second half of 2020. Himax commands more than 30% of the global automotive DDIC market and inevitably this business is impacted by the slow overall demand. However, while the sequential revenue was down 15.2% in Q2, revenue for the first half was still up 3.3% year-over-year. Himax's technology and leadership in the automotive display market has helped the Company continues to gain ground with customers. Himax expects to deliver a mid-single-digit sequential increase in the third quarter, and the Company will remain the leader in this market as the major developing trends have not changed amid short-term challenges.

Backed by Himax's leading market position in new technologies for automotive display, the Company has a strong and positive long-term outlook for the automotive segment. Himax is the primary partner for most of the world's automotive panel makers to enable new technologies. Specifically, Himax has been selected by many leading tier-1 and OEMs for their upcoming first launches of vehicles using displays with TDDI technology. While the Company only expects a small volume of shipments in 2020, Himax anticipates meaningful full production shipments of automotive TDDI as it moves into 2021.

Non-Driver Product Categories
WLO
The second quarter WLO revenue declined sequentially due to lower shipment to an anchor customer. The factory to which Himax usually ships this product was ordered to shut down temporarily by the local government as part of their disease containment measures. However, the Company's shipments to the anchor customer recorded a nice growth compared to the same quarter last year. Himax continues to engage several strategic customers and/or partners to develop new projects for DOE, diffuser, and optical lens solutions for future generation products covering a wide range of different applications.

3D Sensing
In smart phone application, most customer inquiries and design projects are moving toward ToF 3D sensing for world-facing camera that features longer range and wider-angle coverage for AR, 3D modeling and gaming features.  With ToF, Himax provides optical components and/or projectors which are critical in the performance of the whole ToF solution. In this business, the Company has partnerships with ToF sensor providers, laser vendors and smartphone makers and are engaged for various stages of product development for next generation smartphones.

For non-smartphone 3D-sensing engagements, Himax focus on smart door lock and payment system applications where it provides structured light-based 3D sensing total solutions. To broaden Himax's market reach, the Company also offers its market-leading 3D decoder ASIC as an individual component for integration into others' systems. Through such partnerships, Himax is able to reach out to markets that it is not yet familiar with, such as industrial robotics and access control systems. 3D sensing remains one of the main growth drivers for Himax.

Ultralow power smart sensing
In order for Himax's WiseEye technology to reach its maximum potential, the Company has adopted a flexible business model whereby, in addition to total solution where it provides processor, image sensor and AI algorithm, the Company also offers those individually as key parts in order to address the market's different needs and widen its market coverage. For customers who own their own algorithm and wish to develop their own applications, Himax can provide its ultralow power AI processor and image sensor without algorithm. The customer can piggyback on Himax's technology and focus their effort on bringing AI to edge devices by transforming a wide range of sensor data, including video, sound, movement, gesture, among others, into actionable information, all with extremely low power consumption. For those customers/partners whose main business is to provide AI processors, Himax can offer its ultralow power image sensors without its AI processor and algorithm.

For the total solution offering, Himax launched a computer vision human detection notebook solution which has been well recognized and is being incorporated into the next generation premium notebook models of key OEMs and ODMs.  Himax's total solutions are also being integrated into a wide range of other applications such as TV, doorbell, door lock, air conditioner, etc. by engaging leading players in those industries. For the other type of business model where Himax only offers key parts, the Company's strategy is to actively participate in the ecosystems led by the world's leading AI and cloud service providers. A recent illustration of this strategy is an announcement for the collaboration with Google whereby, running on Google's TensorFlow Lite for Microcontrollers kernel, Himax provided its AI processor with CNN (convolutional neural network) based SDK (software development kit) for developers to generate deep learning inferences with video and voice commands data to boost overall system performance while consuming extremely low power. Being an official partner of Google's TensorFlow, Himax gets to enjoy the enormous network of its ecosystem participants. Just over a month after the announcement, Himax is already receiving inquiries from large corporations and individual AI developers alike with application ideas covering a broad range of industries. The Company is very encouraged by the enthusiastic discussions about possible WiseEye applications that are taking place in various user groups for emerging AI market ideas. Last but not least, Himax is working closely with other leading AI and cloud service providers worldwide to incorporate WiseEye edge AI solution into their ecosystems, in an attempt to reach the broadest market coverage possible. Himax is extremely excited about these developments.

The Company's industry-first 2-in-1 CMOS image sensor has penetrated into the laptop ecosystem for the most stylish super slim bezel design with 3 types of popular application features, namely RGB sensor for video conference, RGB/IR sensor for Windows Hello facial recognition, and/or ultralow power AI computer vision for human presence detection. Himax expects to see small volume in certain premium notebook models in late 2020 with more volume expected in the coming years.

LCOS
Himax continues to focus on AR goggle devices and head-up-displays (HUD) for automotive. Many of its industry-leading customers have demonstrated their state-of-the-art products, including holographic HUD, AR glasses and LiDAR system, with Himax LCOS technology inside. Himax's technology leadership and proven manufacturing expertise have made the Company a preferred partner for customers in these emerging markets and their ongoing engineering projects in AR goggles and HUD for automotive applications.

At this point, Himax expects to deliver strong growth for the third quarter. The Company sees very good momentum in its smartphone TDDI business against the backdrop of a depressed global smartphone market. Himax's tablet ICs, both discrete driver and TDDI, made remarkable contributions to its first half results and are on track to carry the nice momentum into the second half. The Company also foresees decent growth for the notebook, TV and Tcon products for the next quarter. However, third quarter growth will be constrained due to an industry-wide foundry shortage.

Similar to Himax's usual practice before 2019, the Company will grant RSUs, rather than stock options, on September 30 this year for employees' share-based compensation. As a reminder, Himax did not grant RSUs last year. Rather, 2,226,690 units of stock option were granted to the team at an exercise price of $2.27 last September. The Company's third quarter IFRS earnings per diluted ADS guidance has taken into account the expected 2020 RSU grant, which, subject to the Board approval, is now assumed to be around $3.0 million, or 1.3 cents per diluted ADS, almost all of which will be vested and expensed immediately on September 30, the grant date. The grant of RSUs would lead to higher third quarter IFRS operating expenses compared to the other quarters of the year.

Due to the heavy volume of earning's conference calls on August 6^th and at the recommendation of its conference call provider, Himax adjusted the Q2 2020 Earnings Call time to 7:45 a.m. from the normal 8:00 a.m. to ensure the quality of the conference call for its participants. A replay of the call will be available beginning two hours after the call through 11:15 a.m. US EDT on August 14^th, 2020 (11:15 p.m. Taiwan time, August 14^th, 2020) on www.himax.com.tw and by telephone at +1 (855) 859-2056 (US Domestic) or +1 (404) 537-3406 (International). The conference ID number is 4668914. This call is being webcast by Nasdaq and can be accessed by clicking on this link or Himax's website, where the webcast can be accessed through August 6^th, 2021. 

Himax Technologies, Inc. (NASDAQ:HIMX) is a fabless semiconductor solution provider dedicated to display imaging processing technologies. Himax is a worldwide market leader in display driver ICs and timing controllers used in TVs, laptops, monitors, mobile phones, tablets, digital cameras, car navigation, virtual reality (VR) devices and many other consumer electronics devices. Additionally, Himax designs and provides controllers for touch sensor displays, in-cell Touch and Display Driver Integration (TDDI) single-chip solutions, LED driver ICs, power management ICs, scaler products for monitors and projectors, tailor-made video processing IC solutions, silicon IPs and LCOS micro-displays for augmented reality (AR) devices and heads-up displays (HUD) for automotive. The Company also offers digital camera solutions, including CMOS image sensors and wafer level optics for AR devices, 3D sensing and machine vision, which are used in a wide variety of applications such as mobile phone, tablet, laptop, TV, PC camera, automobile, security, medical devices, home appliance and Internet of Things. Founded in 2001 and headquartered in Tainan, Taiwan, Himax currently employs around 2,000 people from three Taiwan-based offices in Tainan, Hsinchu and Taipei and country offices in China, Korea, Japan, Israel, and the US. Himax has 2,926 patents granted and 553 patents pending approval worldwide as of June 30^th, 2020. Himax has retained its position as the leading display imaging processing semiconductor solution provider to consumer electronics brands worldwide.

Factors that could cause actual events or results to differ materially include, but not limited to, general business and economic conditions and the state of the semiconductor industry; market acceptance and competitiveness of the driver and non-driver products developed by the Company; demand for end-use applications products; reliance on a small group of principal customers; the uncertainty of continued success in technological innovations; our ability to develop and protect our intellectual property; pricing pressures including declines in average selling prices; changes in customer order patterns; changes in estimated full-year effective tax rate; shortages in supply of key components; changes in environmental laws and regulations; exchange rate fluctuations; regulatory approvals for further investments in our subsidiaries; our ability to collect accounts receivable and manage inventory and other risks described from time to time in the Company's SEC filings, including those risks identified in the section entitled "Risk Factors" in its Form 20-F for the year ended December 31, 2019 filed with the SEC, as may be amended.

Eric Li, Chief IR/PR Officer
Himax Technologies, Inc.
Tel: +886-6-505-0880 Ext.60145
Fax: +886-2-2314-0877
Email: [email protected]
www.himax.com.tw

Karen Tiao, Investor Relations
Himax Technologies, Inc.
Tel: +886-2-2370-3999 Ext. 22326
Fax: +886-2-2314-0877
Email: [email protected]
www.himax.com.tw

Investor Relations - US Representative
Mark Schwalenberg, Senior Vice President
MZ North America
Tel:  +1-312-261-6430
Email:  [email protected]
www.mzgroup.us