Himax Technologies Q3 2024 Earnings Call Transcript

Quartr
Provided by Quartr
November 7, 2024

There are 4 speakers on the call.

Operator

Hello, ladies and gentlemen. Welcome to the Himax Technologies Incorporation Third Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session and instructions will follow at that time. As a reminder, this conference call is being recorded.

Operator

And now, I would like to turn the conference over to Mr. Eric Li, Chief IRPR Officer at Himax. Mr. Li, please begin.

Speaker 1

Welcome, everyone, to the Himax Third Quarter 2024 Earnings Call. My name is Eric Li, Chief IRP Officer at Himax. Joining me today are Jordan Wu, President and Chief Executive Officer JC Cart Han, Chief Financial Officer. After the company's prepared comments, we have allocated time for questions in a Q and A session. If you have not yet received a copy of today's results release, please e mail himxnzgroup.usorhxir@imax.com.tw access the press release on financial portals or download a copy from Himax's website at www.imax.com.qw.

Speaker 1

Before we begin the formal remarks, I'd like to remind everyone that some of the statements in this conference call, including statements regarding expected future financial results and the industrial growth, are forward looking statements that involve a number of risks and uncertainties that could cause actual events or results to differ materially from those described in this conference call. A list of risk factors can be found in the company's SEC filing Form 20 F for the year ended December 21, 2023 in the session entitled Risk Factors that may be amended. Except for the company's full year of 2023 financials, which were provided in the company's 20 F and 5 with SEC on April 2, 2024. The financial information included in this conference call is unaudited and consolidated and prepared in accordance with IFI's accounting. Such financial information is generated internally and has not been subjected to the same review and scrutiny, including internal auditing procedures and external audits by an independent audit to which we subject our annual consolidated financial statements and may vary materially from the audited consolidated financial information for the same period.

Speaker 1

The company undertakes no obligation to publicly update or revise any forward looking statements, whether as a result of new information, future events or otherwise. On today's call, I will first review the Himax consolidated financial performance for the Q3 2024, followed by our 4th quarter outlook. Jordan will then give an update on the status of our business, after which we will take questions. You may submit your question online through the webcast or by phone. We will review our financials on an IFRS basis.

Speaker 1

We are delighted to announce that Q3 revenues and profits both surpassed guidance, while gross margin was in line with guidance issued on August 8, 2024, despite prevailing economic challenges. The better than expected financial results stand primarily from strong order momentum in automotive, tablet and the TCAR product lines. 3rd quarter revenues registered $222,400,000 a decrease of 7.2% sequentially, yet significantly exceeded our guidance range of a 12% to 17% decrease. Gross margin came in at 30%, in line with our guidance of around 30%, but down from 30% in the previous quarter and the 31.4% in the same period last year. The sequential decline was the result of unfavorable product mix.

Speaker 1

Q3 profit per diluted ADS was $0.074 considerably above the guidance range of 0.015 dollars to 0.045 dollars due to better than expected revenues. Revenues from large district drivers came in at $30,700,000 reflecting a sequential decrease of 21.2%. The decrease was primarily attributed to weaker monitor and the TV IC sales due to customers disbucking any challenging market conditions following substantial Q2 replenishment for shopping festival. In contrast, notebook IC sales increased notably, resulting from rush orders for legacy products from leading panel customers. Sales of large panel driver ICs accounted for 13.8% of total revenue for the quarter compared to 16.3% last quarter 18.3% a year ago.

Speaker 1

Revenue from the small and the medium sized display driver segment totaled $155,400,000 a decline of 2.2% sequentially, but significantly faster than our guidance of a low teens decline, thanks to stronger than expected sales in the automotive and the tablet market. In Q3, automotive driver sales, which include both traditional DDIC and TDDI, experienced a mid single digit decrease, yet largely outperformed our expectation of a high teens decline. This better than expected result was primarily fueled by rush orders from our Chinese panel customers shortly after our last earnings call on the backdrop of the Chinese government's renewed trading stimulus announcement made in mid August as part of their effort to further boost automobile consumption. Our automotive business comprising drivers, TCOM and OLED sales remained the largest revenue contributor in Q3, representing nearly half off total sales. Meanwhile, Q3 tablet IC sales also exceeded guidance of a sequential decline, with sales slightly up from last quarter, fueled by rush orders from leading end customers.

Speaker 1

Q3 smartphone IC sales increased a decent double digit sequentially, thanks to our thanks to new third out launches of leading phone makers. The small and the media size driver IC segment accounted for 69.9% of total sales for the quarter compared to 66.3% in previous quarter and 67.6% a year ago. 3rd quarter non driver sales reached $36,300,000 a decline of 13.1% from the previous quarter. The decrease was primarily driven by a double digit sequential decline in key comp sales, particularly for monitor applications, as customers pulled forward their inventory purchases in prior quarters, anticipating strong sales during the shopping festivals. However, automotive tea con sales saw an impressive sequential increase of over 30% as our solutions, especially the market leading local gaming tea con, continue to be rapidly adopted by major panel manufacturers, Tier 1 suppliers and automotive manufacturers worldwide.

Speaker 1

In the Q3, our TCOM business accounted for over 9% of total sales, with notable contributions from automotive Tecom, representing almost half of Tecom sales, supported by steady growth with well over 100 secondured design win projects. Non driver products accounted for 16.3% of total revenues as compared to 17.4% in the previous quarter and 14.1 percent a year ago. 3rd quarter operating expenses were $60,800,000 an increase of 28.4% from the previous quarter and a decline of 4.7% from a year ago. The sequential increase stemmed primarily from expense for annual bonus compensation, which we award employees at the end of September each year, typically resulting in higher Q3 employee compensation expense compared to other quarters per year. The year over year decrease was mainly due to a decline in employee bonus compensation, but the amortized portion of prior year's bonuses for last year was higher than that for this year.

Speaker 1

As a reminder, we grant annual bonuses to employees at the end of September each year, including ISU and cash awards based on the expected profit of the full year. Our annual bonus compensation grant for 2024 was $12,500,000 in line with guidance, out of which $11,200,000 was immediately exhausted and expensed in the Q3. In comparison, the annual bonuses for 2023 and 2022 were $10,400,000 $39,600,000 respectively, of which $9,700,000 $18,500,000 were vested and expensed immediately. To further elaborate, our Q3 bonus expense include 2 portions. First, as I just mentioned, dollars 11,200,000 was the allocation for the immediately adopted and recognized portion of the current year's bonus grant.

Speaker 1

2nd, dollars 2,700,000 was spent for the amortized tranches of high year bonuses compared to $2,800,000 last quarter and $6,200,000 a year ago. Amid ongoing macroeconomic challenges, we are strictly enforcing budget and expense controls with full year 2024 OpEx projected to decline mid single digit compared to last year. 3rd quarter operating income was $5,900,000 or 2.6 percent of sales compared to 12.2 percent last quarter and 4.6 percent of sales for the same period last year. The sequential decrease, aside from lower sales and a contraction in gross margin, primarily reflected the difference in annual employee bonus compensation, as mentioned earlier, totaling $11,200,000 or 5.1 percent of sales that immediately lasted and expanded portion of this year's new grant. The year over year decrease in operating margin was mainly driven by a decline in sales and lower gross margins.

Speaker 1

3rd quarter after tax profit was $13,000,000 or $0.074 per diluted ADS compared to $29,600,000 or $0.169 per diluted ADS last quarter and $11,200,000 or $0.064 in the same period last year. In calculating the Q3 after tax profit, we made a favorable income tax adjustment to rectify our estimated tax expenses for preceding quarters this year. Hence the sequential increase in after tax profits. Turning to the balance sheet. We had $206,500,000 of cash, cash equivalents and other financial assets at the end of September 2024 compared to $253,800,000 a quarter ago and $155,400,000 at the same time last year.

Speaker 1

The sequential decrease in cash balances was mainly the result of $50,700,000 payment of annual dividends. Operating cash outflow for the 3rd quarter was approximately $3,100,000 compared to an inflow of $26,900,000 in Q2. The outflow was primarily due to $30,100,000 paid to employees for their bonuses, which included $10,800,000 for immediately adopted portion of the year's award and $19,300,000 for vested award granted over the past 3 years. Operating cash flow, excluding employee bonus, was $27,000,000 inflow during the quarter. We had $36,000,000 of long term unsecured loans as of the end of 3rd quarter, of which $6,000,000 was the current portion.

Speaker 1

Our quarter end inventory as of September 30, 2024 was $192,500,000 lower than $203,700,000 last quarter and $259,600,000 in the same period last year, indicating a way of managed and balanced inventory level from quarter to quarter. Accounts receivable at the end of September 2024 was $224,600,000 down from $242,400,000 last quarter and $248,500,000 a year ago. DSO was 92 days at the quarter end as compared to 99 days last quarter and 95 days a year ago. 3rd quarter capital expenditures were $2,600,000 versus $4,600,000 last quarter and $2,600,000 a year ago. The 3rd quarter CapEx was mainly for R and D related equipment for our IT design business.

Speaker 1

As of September 30, 2024, Himax had 175,000,000 ADS outstanding, little changed from last quarter. On a fully diluted basis, the total number of ADS outstanding for the Q3 was 175,000,000 dollars Now turning to our Q4 2024 guidance. We expect 4th quarter revenues to be flat to slightly down sequentially. Gross margin is expected to be flat to slightly up sequentially depending on product mix. The 4th quarter profit attributable to shareholders is estimated to be in the range of $0.093 to $0.11 per fully diluted ADS.

Speaker 1

I will now turn the call over to Jordan to discuss our Q4 outlook. Jordan, the floor is yours.

Speaker 2

Thank you, Eric. Looking ahead to Q4, the macro environment remains challenging. Panel customers are reducing production to stabilize panel prices in response to the current market conditions. At the same time, end brands are also taking a cautious approach to panel procurement and maintaining low inventory levels. Taken together, these factors have suppressed IT demand, leading to our conservative outlook for the Q4.

Speaker 2

Against this backdrop, we continue to strictly manage expenses and implement various costs of the modernization measures, including enhancing manufacturing and operational efficiency as well as leveraging the diverse range of vendors in foundries and backend suppliers. Looking ahead, while the global economy still looks uncertain, we are confident in the business outlook of several key areas, namely automotive, AI, WLO and OLED. I expect these product lines to drive significant growth of our business. First, let me elaborate on the automotive sector, our primary revenue contributor. We remain optimistic in our long term outlook as the automotive display market continues to expand through innovation and technological advancements.

Speaker 2

Our confidence also stems from our comprehensive offering and leading position in the market, particularly in the areas of LCD TDDI, OLED and TCAM, all of which are relatively new and cutting edge technologies for automotive display. These technologies are expected to see continued adoption, providing us with sustainable long term growth opportunities. It is worth noting that there have been significant fluctuations in automotive market demands in recent quarters, particularly from the Chinese market, which accounts for over 30% of global vehicle sales. Government policies, subsidies and aggressive discount campaigns by car manufacturers have made supply and demand less predictable, creating new challenges for commodity IC suppliers. For commodity ICs, unlike the tube electronics products feature rigorous safety and reliability standards, resulting in longer production lead time, which poses greater challenges in handling customers rush orders.

Speaker 2

However, since the dominant market share and substantial shipment volume in the automotive sector, we are well equipped to navigate these market fluctuations. In fact, our ability to respond to these class related demands for automotive ICs was instrumental in our better than expected Q3 financial results with final revenues exceeding the midpoint of our guidance by as much as 7%. The higher revenues were driven primarily by March orders, but it rose after our last earnings call tailed in the middle of Q3. Indeed, being able to quickly respond to changing customer needs has become the crucial competitive advantage in the automotive IC sector for us. In terms of our WLO business, we are committed in our collaboration with Fozi from the 30OCPO business, where I'm pleased to share that we are making decent progress in the initial small scale production of the 1st generation solution.

Speaker 2

Demand for high speed optical communication technology is surging, driven by advancements in high performance computing and artificial intelligence. Moreover, Himax and Thorsea, the locally 4 leading AI semiconductor companies and foundry partners, have begun new technology development for future generation products. We believe this will create new revenue streams for Himax and make a significant contribution to our total revenue and profit in the coming years. We start I will now begin with an update on the large panel driver IC business. In Q4, we anticipate a double digit sequential sales decrease for large display driver ICs due to soft holiday shopping demand expectations.

Speaker 2

Ongoing customer distorted since Q2 and intensified China local competition. As I just mentioned, panel manufacturers are strategically reducing production to safeguard panel prices, while end brands are enforcing strict procurement control in response to soft demand and maintaining low inventory levels. Looking ahead in the novel sector, the emergence of AIPC is prompting display upgrades towards OLED displays and displays were equipped with touch features. Through strategic collaborations with leading panel members in Korea and China, Himax is well positioned to capitalize on this trend. Operating a comprehensive range of novel IC products, including DDIC, TCAM and touch controller for OLED displays, and TDDI and TCAM for LCD display.

Speaker 2

1st, on TDDI for LCD, we are pioneering in cell touch TDDI for novel LCD display, Our state of the art in cell touch TDDI solution features the proprietary architecture where the touch controller is embedded inside the TDDI chip with the display portion of the TDDI, taking advantage of the conventional display driver configuration to convey TCAM data to drive the panel. This allows customers to maintain the existing T Con adoption, substantially reducing their product development efforts and enhancing production flexibility. Additionally, the TDDI features high integration multi chip cascade and increased channel output, enabling higher resolution of up to 4 ks and larger screen of up to 16 inches with complex PCB and narrow bezel designs, making it suitable for both mainstream and high end LCD laptops. In the Q3, our newly introduced eCell Touch CDN successfully entered mass production for a prominent brand for the AIPC. Several projects are also in progress with other brands for the upcoming notebook models.

Speaker 2

The second area of focus is OLED, which is seeing increasing adoption in premium laptops. In addition to our OLED DDIC and TCAR solutions, we are also pioneering wholesale touch control technology on normal OLED display. Multiple projects with top panel and laptop bezels are underway. Finally, we are developing the next generation EDP-1.5 display interface or TCAM applicable to both LCD and OLED panels, supporting high frame rates, low power panel replay, adaptive sync and high resolution. We aim to launch our EDC 1.5 T COMP in the Q2 of 2025.

Speaker 2

We are confident that with these new initiatives, Kymax will be the front runner of next gen AIPCs and premium notebooks. With several projects slated for mass production starting in 2025, we believe our LCD and OLED notebook solutions will act as a growth catalyst for our local IC business for the coming years. Turning to the small and medium sized display driver IC business. We anticipate 4th quarter revenue to be flat sequentially. Automotive IC revenue in Q4 is expected to resume growth and increase single digit sequentially, mainly supported by our growing China market promotional events and the Chinese government's renewed trading stimulus policies as earlier mentioned.

Speaker 2

Notably, our automotive driver IC sales for the full year 2024 are projected to grow high teens year over year, significantly outperforming global automotive growth, primarily driven by continued expansion of TDDI adoption among all major end customers worldwide. In the automotive TDDI sector, we continue to strengthen our market dominance with cumulative shipments already exceeding 70,000,000 units, thus surpassing most of our competitors. With nearly 500 design in projects secured and only about 3% currently advanced production, we continue to see substantial growth potential ahead. Remarkably, our Q4 of commodity TDDI sales are set to surpass DDIC sales for the first time, highlighting the widespread adoption of our solutions worldwide, along with growing demand for more intuitive, interactive and cost competitive touch panel features enabled by TDDI solutions. Prior our full year 2024 traditional automotive DDIC sales are expected to decline as they are partially replaced by TDDI.

Speaker 2

Our shipment quality for DDIC is said to see a modest increase. This is indicative of the product's long lifecycle as many of our customers' legacy models will not be retired for years. And many displays such as cluster display, HUD or rear and silu mirrors do not require touch feature. We remain the leader of the automotive DDIC market with approximately 40% global market share. Meanwhile, an emerging market trend shows more customers are opting for Timex's TDDI or LCDDi coupled with our lower gaming TCOM as the extended development platform for newer automotive displays across various sizes and applications.

Speaker 2

This growth platform adoption of more of our automotive IC offerings not only reflects strong customer loyalty to our technologies and services, but also signifies the increase in content value for Himax on a per panel basis. Himax is widely recognized as the leader in the automotive display IC market, operating the industry's broadest range of products with leading market share in each of the product areas. The diverse range of offerings allows us to address different customer needs and adapt to changing market trends, thereby strengthening our market presence and boosting potential revenue. Our newly introduced TED or TCAR embedded driver IC solution, which combines TDI with the whole team in TCAM into a single chip, and exemplifies our commitment to providing customers with more competitive, flexible and broader options. This solution is ideal for smaller panels that typically require only 1 to 2 ICs for cost consideration, whereas steel operates advanced touch and lower dimethyl shifts.

Speaker 2

Production is set to begin in early 2025 with several projects and engagements currently underway with major customers. Meanwhile, we are actively collaborating with Automotive TOI Partners to develop more advanced, innovative and or cost optimized solutions tailored to various market needs. These not only underscores our customers' confidence in our technology leadership, but also reflects their commitment to engaging with us in future roadmap collaborations. Moving to smartphone IG sales, we anticipate Q4 to slightly decline sequentially with our voice shipment to key customers. 2 more tablet sales are projected to decline on low teens sequentially as LAN customers are expanding their replacement cycles due to challenging economic conditions.

Speaker 2

Next for an update on our OLED business. In the automotive OLED market, we have formed strategic partnerships with leading panel manufacturers in Korea, China, and Japan. As OLED technology gains traction in all premium car models, Himax is well positioned as the preferred partner, thanks to our strong presence and proven track records in the LCD Automotive Display Sector. Leveraging our 1st mobile advantage, we look to capitalize on the growing adoption of OLED in automotive displays by offering a comprehensive range of OLED solutions, including DDIC, TCAM and non sale touch controller. We believe this positions us as the primary beneficiary of the growing adoption of OLED display in automotive.

Speaker 2

For instance, our advanced OLED on sale touch controllers are setting new industry standards with an impressive signal to noise ratio of over 45 dB, ensuring reliable performance under challenging conditions such as glove wiring and wetting door operations. Our all installed capac controller for automotive applications entered production last quarter and adoption expanded across the board. With additional projects starting mass production next year, we expect this segment's contribution to our revenues to increase starting in 2025. Beyond the automotive sector, we have made notable advances in the tablet and mobile sectors with top OLED panel manufacturers in Korea and China. Our comprehensive OLED product offerings encompassing DDIC, TCAM and touch controllers have led to several new projects that are on track to enter market production during Q4 and as we move into 2025.

Speaker 2

Regarding smartphone OLED, we expect smart production to commence next year. Currently, we are making good progress in collaborations with customers in Korea and China on several verification and partnership projects. Additionally, we are building strong long term partnerships with these older players to enhance our market position. I would like to now turn to our non driver IC business update, where we expect the 4th quarter revenue to increase mid teens sequentially. First, for an update on our TCAM business.

Speaker 2

We anticipate Q4 TCAM sales to increase mid teens sequentially, driven by automotive and a one time basic TCAM product shipment to a leading projector customer. Automotive TCAM business is expected to achieve high teens growth sequentially, driven by the shipment of secure design wins. For the full year, our commodity T Card business is projected to grow over 80% compared to last year, contributing to nearly 4% of our total sales. Moving forward, we are confident in the strong growth trajectory in the automotive Tecan business, backed by our dominant global gaming TCAR market position with over 100 design wins projects, of which only a small portion are currently in mass production and new design wins continue to expand. Many panel houses Tier 1 and OEM worldwide have now expanded the adoption of our leading edge, double dimming T Con solutions from premium to mature car models.

Speaker 2

We are well positioned for decent growth in automotive TCAM over the next few years. Despite subdued end market demand, we are actively developing next generation OLED TICs for tablet, notebooks and automotive applications. This proactive approach not only broadens and diversifies our product offerings but also helps us navigate through industry shifts towards wider adoption of OLED displays across applications. Some of our newly development TCAT ICs for OLED Tech leads and notebooks are already showing promising results. For automotive OLED teacup, an area rich with exciting growth potential, we began production in 2021 and anticipate new product launches with advanced feature enhancements in 2025.

Speaker 2

Switching gears to WiseEye ultra low power AI sensing solution, the cutting edge endpoint AI integration featuring industry leading ultra low power AI processor, over from CMOS image sensor and advanced CNN based AI algorithm. In the fast changing AI landscape, WiSA AI Technology stands out for its expertise in on device tiny ML microcontroller solutions, characterized by remarkably low power consumption operating at just single digit megawatts, making it possible to add AI functionalities to battery powered endpoint devices. Our Wi Fi technology is unlocking new opportunities across various applications, particularly in endpoint devices for everyday life. The prime example is the smart door lock, stemming from our collaboration with Bessemer, a leading vendor in China's high end smart door lock market. We are expanding use cases with other world leading door lock makers across continents by integrating innovative AI features such as parcel recognition, smart anti pinch protection, and palm band biometric access.

Speaker 2

This approach targets diverse home security markets, live value, Wi Fi industrial power consumption and own device AI capabilities, which are crucial for battery powered endpoint AI devices. Next for an update on our Wi Fi module business. We continue to offer a diverse range of product and coding modules, collaborating with ecosystem partners and third party system integrators to develop retrained no code and low code AI solutions with the goal of lowering barriers and timelines for developers entering the AI space. Progress is being made across various domains, including smart parking, access control, power LAN authentication, smart devices, smartphones and more. Among this, Himet's hardware solution, which is part of our WiSAI AI module business, has garnered significant attention and positive feedback from customers since its launch this year.

Speaker 2

He has already been adopted by a U. S. Customer for Smart Access Control Systems and is on track to begin up production by the end of the year. Extensive engineering activities of YVESI Palm WAN are ongoing with world leading players across various industries, including smart door locks, access control, notebooks and automotive, among others. The Wi Fi Palm VAN solution integrates the Himax Wi Fi 2 AI Processor and AOS CMOS image sensor and a proven Palm VAN authentication algorithm.

Speaker 2

It features an actual low power compact module capable of authenticating an individual's identity in under 100 milliseconds while consuming only a few milliwatts of power, ideal for battery charge on device AI endpoint applications. Park WAN authentication utilizes unique internal WAN patterns that are difficult to replicate or spoof. In addition to exceptional low power consumption, YZAI Power WAN provides robust security and reliability with industry leading low rates of false acceptance and rejection, making it nearly impossible to bypass or misidentified. Equally important, YSIGHT promises identification locally, eliminating privacy risk associated with cloud access required for solutions that perform authentication remotely. We anticipate increasing sales contribution from ORSight content across a diverse array of applications starting next year and are excited about the strong customer interest and opportunity for rapid growth in our wide side module business.

Speaker 2

Now switching to a quick update on WLO. In June of this year, Himax joined forces with Fawzi, a global leader in silicon photonics connectors, to announce the launch of an industry leading optical communication solution designed for the most advanced multi chip modules. Himax and Paulsy are currently progressing through the small scale production phase of our 1st generation solution designed for the LTO architecture. In addition, Himax, in collaboration with Fawzi, along with leading global AI, IT design companies and foundry partners, has commenced development for next generation technologies with the objective of incorporating these advancements into more sophisticated CTO architectures. Leveraging our years of WLO engineering expertise, Himax has meticulously designed and developed nanoscale precision optical systems for LTOCTO.

Speaker 2

In the LTOCTO optical solution, of precision engineered optical design and manufacturing technologies ensure that the optical signals in each fiber coupled precisely with a silicon photonic integrated circuit, or PIC, in the LPO, CPO optical components. This achieves high precision, low loss, and high speed transmission to meet the demands of silicon photonic transmission in high speed computing. In addition to the progress made in the OPO's CTO, we have seen an increase in engineering collaborations with global technology leaders who are leveraging our WLO expertise for ARVR and a range of other expectations, underscoring the widespread recognition of our technology. We believe that WLO will make a significant contribution to our overall revenue and profit in the coming years. That concludes my report for the quarter.

Speaker 2

Thank you for your interest in Himax. We appreciate your joining today's call and are now ready to take questions.

Operator

Yes. Thank you, Jordan. Ladies and gentlemen, we will now begin our question and answer session. Now we'll have our first question, Donnie Tan, Nomura. Go ahead please.

Speaker 3

Thank you, Jordan and Eric for taking my question. My first question is regarding to your automotive business. So based on your guidance, automotive driver IC sales in 4th quarter will be growing like single digit sequentially. But when we look at some of peers' announcements like, for example, Novatek, like Radian, they all mentioned about that automotive driver IC sales in 4th quarter may decline a little bit sequentially. And also, I remember that back in past few months, it seems like the automotive business was pretty volatile, customers adding orders and cut orders within couple of months.

Speaker 3

So what makes this kind of volatility that big? And how confident we are to outperforming our peers in terms of automotive business into 4th quarter? Thank

Speaker 2

you. Thank you for the question. I mean, as you know, we are always very confident and actually we are always on somehow conservative side where we provide our guidance. So when we say the Q4 automotive overall business is likely to is projected to grow. I mean, we certainly we mean business.

Speaker 2

And similar to the last quarter, we are seeing a lot of rush orders, which unfortunately we are able to fulfill because of the reasons I mentioned earlier in my prepared remarks. And I think the customers appreciate that the fact that Himax has the leading market position and also is fulfilling our responsibility by fulfilling such trust orders for being the leading market share player. And I think the main reason for the Q4 is really a continuation of the last minute Q3 rush orders. China is renewing its stimulus plan and that is rushing the carmakers and to a great extent consumers to make their purchase before the incentive plan expires. And I think that is what we are seeing.

Speaker 2

Having said that though, so again, we are very confident about our projection for Q4. We are, however, less confident on the prospect of Q1. So perhaps a more important question is what is our prospect for 2025? I know you didn't ask that question, but I think it's probably a good opportunity for me to elaborate a little bit on our prospect here. So, again, we are very confident about our continued market share leadership and close engagement with our customers across the global automotive supply chain.

Speaker 2

However, we don't have good visibility to be quite honest for our automotive business for 2025. And this is mainly because of the uncertainty relating to the macro environment both politically and economically. I think I don't need to elaborate further on that. We all know what we are talking the uncertainty. Nevertheless, regardless of the macro environment, we are quite comfortable about further growing our Automotive DDI business next year, which surpassing DDIC is already our largest source of revenue right now, as you know.

Speaker 2

Our confidence stems from our large number of design win projects, which are yet to enter mass production and the penetration of incelsdf automotive, which is still projected to somehow grow further, although certainly not at the same kind of high growth rate that we that we enjoyed over the last few years. Our confidence level is even higher for growing our global dimming TCOM as well as LTTI business in 2025 for very similar reasons, I. E, large number of design win projects already in hand and dominant market position. We are actually now projecting for the TCAN to grow a rather decent double digit next year and for LT DI, starting from a relatively low base to grow triple digit actually next year. Again, we are fairly confident about this prospect.

Speaker 2

However, I can't say the same for traditional DDIC for next year. As you know, the overall DDIC volume of the market is projected to decline somehow. As it is being partially replaced by TDDI, but it still has solid demand for applications that do not require touch features. So, the next so the business next year for our automotive DDIC will depend largely on the overall automotive shipment. We don't really expect our market share to decline, but we can't really with our 40% market share, which is already quite high, we can't really project our market share to grow much further either.

Speaker 2

If I try to complete the story, let me also look further ahead into 2026 'twenty seven. We are likely to see our OLED business taking off for automotive. We are already collaborating very closely with leading customers in Korea, China and Japan new generation projects that are already in design stage with Tier 1s and ODMs involving all of our DDIC T Card and OnCell Touch solutions for OLED with our touch solution already in early stage of mass production as we just mentioned. So while the automotive OLED will be the story of 2026 and beyond, we believe it will represent a major growth engine for Himax when it happens because what we are seeing right now, what we are experiencing right now is very, very busy design activities with not just panel makers and also Tier 1s and OEMs for their high end models. So I hope that addresses your question.

Speaker 3

Thank you, Jordan. Yes, but another follow-up this slide. As I mentioned, some of our peers mentioned about Q4 may sequentially decline a little bit. So other than the overall customer situation, it seems like getting better towards the end of this year. Is there any specific company reason to drive our automotive sales to be outperforming our peers?

Speaker 2

I certainly don't know what is happening with our peers, but we are seeing these rush orders actually coming from not just 1 or 2 single customers, which is actually otherwise spread from almost across the board various panel makers and covering both DDIC and TDDI and TCAR actually. And I recall very vividly with our automotive TCAR, which has actually very, very low production lead time And we are scrambling to meet the customer demand, which luckily we are able to achieve. However, in the meantime, we are complaining to the customer that this should not happen anymore because partially by luck, we are able to make the delivery for TCAN. And with this long production lead time, if it happens next time, we can't really guarantee it. But anyway, what I'm trying to say is the Russian orders actually came from not just Chinese, also other countries, panel makers, PA1s and Automotive.

Speaker 3

Understood. And my second question is regarding to the CPO progress. Wondering if you okay, firstly, it looks like non driver IC sales growth in the 4th quarter primarily driven by TCOM. So is CPO playing any role there in Q4 yet? Or how should we look at the update progress there for CPO?

Speaker 3

Thank you.

Speaker 2

Yes, it's no, not in Q4. In Q4, we do see some small amount of revenue from this starting from Q4. These are early very early, very small quantity shipments for customers, engineering verification and trial production purposes. So, our WLO for CPO doesn't really contribute to our non driver growth for Q4.

Speaker 3

I see. Do you have any update on the future progress? I mean, when exactly we will see more meaningful progress or sales contribution from CPO? Is there any update on the schedule and the industry dynamics actually?

Speaker 2

Okay, okay. Good question. Let me probably elaborate a little bit on in our prepared remarks, right, we talked about working on next generation technologies and products, right? And so you may wonder exactly what those are and its timeline and therefore your question about contribution potentially for next year or the year after. So, the short answer is we are trying to squeeze more and more optical fiber lines into a very, very limited space, right?

Speaker 2

And that is a very tremendous engineering challenge. Now, one of as we all know, one of the main purposes of using OPOCPO technology is to substantially raise the data transmission rate or how you call bandwidth of the advanced multi chip module, which, as you know, is essentially the bundling of multiple chiplets into a single module through so called advanced packaging, right. The module after such bundling can therefore process a very large amount of data. But to make the module useful, the module also needs to have sufficient bandwidth to transmit that data with the outside in both ways. And we all know optical fiber is being used to replace the traditional metal wire for such high bandwidth data transmission.

Speaker 2

However, the bandwidth of each optical fiber line is still fixed, is still limited, right? And therefore, to up the overall bandwidth of the whole multi chip module, the simple idea is to have multiple optical fiber lines working in parallel And that is exactly what we're working on when we talk about technology roadmap. We are trying to squeeze more and more optical fiber lines into a very limited space. We are targeting some phenomenal increases over the next few years to cope with the projected increase of data amount that need to be transmitted by the advanced multiple multi chip module. So, to achieve that, one other thing is we need to push the boundary of optical design and manufacturing for example, for better waveform integrity after transmission.

Speaker 2

And another example would be for more precise coupling of the optical fiber with the photonic IC that device connected to, right. So, in terms of timeline, I can't really speak on my behalf of my customers. So, all I can say is that we are being requested to accelerate the timeline from something already quite challenging for the migration from 1st generation LPO to more advanced CPO as well as for the readiness of our next generation products enabling fast increasing number of optical fiber lines. So you are and we also mentioned as part of our Q and A last quarter as well, Some people wonder about whether we have the capacity to meet such demands when it really happens. And we certainly we are the math internally several times, right?

Speaker 2

And we are certainly very excited about the prospect because if we look at our partners or customers' projected capacity expansion as well as their projected growth of such high end 2.5D modules or FPUs. Even if we are to fully utilize our existing capacity, we can only meet a small fraction of their projected demand. Now, to be honest, we don't have we still don't have their long term forecast, long term projection for their demand for covering next few years yet, but we feel we are very prepared because all this generation of product I just mentioned, whether this generation or fusion generation of our products will be manufactured in our existing WLO fab with existing capacity, which was built for the purpose of some earlier projects that we worked on several years back for consumer electronics products. Now, without specifics, we believe the same e phasing capacity will generate substantially more revenue and profit for us as the products for LPO, CPO demand much more sophisticated optical design manufacturing compared to those used for our earlier products, which, as I mentioned, is for consumer electronics. So, I hope that addresses all your questions regarding this WLO business.

Speaker 3

Okay. Thank you, Jordan. It's helpful. I'll go back to queue.

Speaker 2

Thank you.

Operator

Thank you. Ladies and gentlemen, we are now in question and answer session. Thank you. Okay, there are no further questions at this moment. Thank you.

Speaker 2

Thank you, operator. As a final note, Eric Li, our Chief IRP Officer will maintain investor marketing activities and continue to attend investor conferences. We will announce the details as they come above. Thank you and have a nice day.

Operator

Thank you, Jordan. Ladies and gentlemen, this concludes Q3 2024 earnings conference. You may now disconnect. Thank you and goodbye.

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Key Takeaways

  • Himax delivered Q3 revenue of $222.4 M, down 7.2% sequentially but outperforming its 12–17% decline guidance, with a 30% gross margin and $0.074 EPS well above the $0.015–0.045 forecast.
  • The small- and medium-sized display driver segment, lifted by stronger-than-expected tablet and automotive orders, made up 69.9% of sales, with automotive alone representing nearly 50% of total revenues.
  • Non-driver ICs, led by a >30% sequential surge in automotive TCON sales, accounted for 16.3% of Q3 revenues, and Q4 TCON is expected to grow mid-teens sequentially.
  • For Q4, Himax expects flat to slightly down revenues, flat to slightly up gross margin, and EPS of $0.093–0.11 per ADS, while continuing strict budget and expense controls.
  • Looking ahead, Himax emphasizes its leadership in automotive display ICs with 500 design wins, ongoing expansion in TDDI, TCAM and OLED solutions, and advancing WLO optical interconnect production.
AI Generated. May Contain Errors.
Earnings Conference Call
Himax Technologies Q3 2024
00:00 / 00:00